rbs201111046k2.htm
 
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For November 4, 2011
 
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:

 
 
 



Divisional performance
 
The operating profit/(loss)(1) of each division is shown below.
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Operating profit/(loss) before
  impairment losses by division
            
UK Retail
694 
731 
649 
  
2,127 
1,752 
UK Corporate
529 
563 
580 
  
1,690 
1,672 
Wealth
75 
77 
75 
  
237 
229 
Global Transaction Services
240 
218 
312 
  
665 
827 
Ulster Bank
108 
80 
110 
  
272 
295 
US Retail & Commercial
199 
193 
198 
  
582 
654 
             
Retail & Commercial
1,845 
1,862 
1,924 
  
5,573 
5,429 
Global Banking & Markets
80 
483 
549 
  
1,637 
2,993 
RBS Insurance
123 
139 
(33)
  
329 
(286)
Central items
70 
45 
74 
  
73 
461 
             
Core
2,118 
2,529 
2,514 
  
7,612 
8,597 
Non-Core
(315)
553 
165 
  
273 
376 
             
Group operating profit before
  impairment losses
1,803 
3,082 
2,679 
  
7,885 
8,973 
             
Impairment losses/(recoveries)
  by division
            
UK Retail
195 
208 
251 
  
597 
938 
UK Corporate
228 
218 
158 
  
551 
542 
Wealth
4 
3 
1 
  
12 
12 
Global Transaction Services
45 
54 
3 
  
119 
6 
Ulster Bank
327 
269 
286 
  
1,057 
785 
US Retail & Commercial
84 
66 
125 
  
260 
412 
             
Retail & Commercial
883 
818 
824 
  
2,596 
2,695 
Global Banking & Markets
(32)
37 
(40)
  
(19)
156 
Central items
3 
(2)
(2) 
  
2 
(1)
             
Core
854 
853 
782 
  
2,579 
2,850 
Non-Core
682 
1,411 
1,171 
  
3,168 
4,265 
             
Group impairment losses
1,536 
2,264 
1,953 
  
5,747 
7,115 
 
Note:
(1)
Operating profit/(loss) before movements in the fair value of own debt, Asset Protection Scheme credit default swap - fair value changes, Payment Protection Insurance costs, sovereign debt impairment and related interest rate hedge adjustments, amortisation of purchased intangible assets, integration and restructuring costs, gain on redemption of own debt, strategic disposals, bonus tax and RFS Holdings minority interest.
 




 
Divisional performance (continued)
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Operating profit/(loss) by division
            
UK Retail
499 
523 
398 
  
1,530 
814 
UK Corporate
301 
345 
422 
  
1,139 
1,130 
Wealth
71 
74 
74 
  
225 
217 
Global Transaction Services
195 
164 
309 
  
546 
821 
Ulster Bank
(219)
(189)
(176)
  
(785)
(490)
US Retail & Commercial
115 
127 
73 
  
322 
242 
             
Retail & Commercial
962 
1,044 
1,100 
  
2,977 
2,734 
Global Banking & Markets
112 
446 
589 
  
1,656 
2,837 
RBS Insurance
123 
139 
(33)
  
329 
(286)
Central items
67 
47 
76 
  
71 
462 
             
Core
1,264 
1,676 
1,732 
  
5,033 
5,747 
Non-Core
(997)
(858)
(1,006)
  
(2,895)
(3,889)
             
Group operating profit
267 
818 
726 
  
2,138 
1,858 
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
% 
% 
% 
  
% 
% 
             
Net interest margin by division
            
UK Retail
3.90 
4.00 
3.99 
  
3.98 
3.87 
UK Corporate
2.48 
2.55 
2.56 
  
2.59 
2.49 
Wealth
3.46 
3.61 
3.41 
  
3.51 
3.40 
Global Transaction Services
5.33 
5.63 
6.67 
  
5.61 
6.98 
Ulster Bank
1.85 
1.69 
1.88 
  
1.76 
1.86 
US Retail & Commercial
3.09 
3.11 
2.89 
  
3.07 
2.80 
             
Retail & Commercial
3.19 
3.22 
3.20 
  
3.23 
3.11 
Global Banking & Markets
0.71 
0.70 
1.13 
  
0.72 
1.09 
Non-Core
0.43 
0.87 
1.04 
  
0.74 
1.18 
             
Group net interest margin
1.84 
1.97 
2.03 
  
1.94 
2.00 
 




 
Divisional performance (continued)
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Risk-weighted assets by division
            
UK Retail
48.7 
49.5 
(2%)
  
48.8 
- 
UK Corporate
75.7 
77.9 
(3%)
  
81.4 
(7%)
Wealth
13.0 
12.9 
1% 
  
12.5 
4% 
Global Transaction Services
18.6 
18.8 
(1%)
  
18.3 
2% 
Ulster Bank
34.4 
36.3 
(5%)
  
31.6 
9% 
US Retail & Commercial
56.5 
54.8 
3% 
  
57.0 
(1%)
             
Retail & Commercial
246.9 
250.2 
(1%)
  
249.6 
(1%)
Global Banking & Markets
134.3 
139.0 
(3%)
  
146.9 
(9%)
Other
9.8 
11.8 
(17%)
  
18.0 
(46%)
             
Core
391.0 
401.0 
(2%)
  
414.5 
(6%)
Non-Core
117.9 
124.7 
(5%)
  
153.7 
(23%)
             
Group before benefit of Asset Protection Scheme
508.9 
525.7 
(3%)
  
568.2 
(10%)
Benefit of Asset Protection Scheme
(88.6)
(95.2)
(7%)
  
(105.6)
(16%)
             
Group before RFS Holdings
  minority interest
420.3 
430.5 
(2%)
  
462.6 
(9%)
RFS Holdings minority interest
3.0 
3.0 
- 
  
2.9 
3% 
             
Group
423.3 
433.5 
(2%)
  
465.5 
(9%)
 
For the purposes of the divisional return on equity ratios, notional equity has been calculated as a percentage of the monthly average of divisional risk-weighted assets, adjusted for capital deductions. Currently, 9% has been applied to the Retail & Commercial divisions and 10% to Global Banking & Markets. However, these will be subject to modification as the final Basel III rules and ICB recommendations are considered.
 
Employee numbers by division (full time equivalents in continuing operations rounded to the nearest hundred)
30 September 
2011 
30 June 
2011 
31 December 
2010 
       
UK Retail
27,900 
27,900 
28,200 
UK Corporate
13,600 
13,400 
13,100 
Wealth
5,600 
5,500 
5,200 
Global Transaction Services
2,700 
2,700 
2,600 
Ulster Bank
4,400 
4,300 
4,200 
US Retail & Commercial
15,300 
15,200 
15,700 
       
Retail & Commercial
69,500 
69,000 
69,000 
Global Banking & Markets
18,900 
19,000 
18,700 
RBS Insurance
15,200 
14,600 
14,500 
Group Centre
6,100 
5,100 
4,700 
       
Core
109,700 
107,700 
106,900 
Non-Core
5,300 
6,300 
6,900 
       
 
115,000 
114,000 
113,800 
Business Services
34,200 
33,500 
34,400 
Integration
1,100 
800 
300 
       
Group
150,300 
148,300 
148,500 
 
The increase in Group employee numbers primarily reflects project staff employed to meet the short-term demands of the Group's change and customer service related programmes. The increase is temporary, and we expect a decline in Q4 2011, and further into 2012, due to the Group's on-going cost reduction programmes.




 
UK Retail
     
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
1,074 
1,086 
1,056 
  
3,236 
2,990 
             
Net fees and commissions
259 
295 
262 
  
824 
784 
Other non-interest income (net of insurance
  claims)
33 
38 
65 
  
105 
182 
             
Non-interest income
292 
333 
327 
  
929 
966 
             
Total income
1,366 
1,419 
1,383 
  
4,165 
3,956 
             
Direct expenses
            
  - staff
(206)
(218)
(226)
  
(639)
(681)
  - other
(102)
(106)
(134)
  
(321)
(409)
Indirect expenses
(364)
(364)
(374)
  
(1,078)
(1,114)
             
 
(672)
(688)
(734)
  
(2,038)
(2,204)
             
Operating profit before impairment losses
694 
731 
649 
  
2,127 
1,752
Impairment losses
(195)
(208)
(251)
  
(597)
(938)
             
Operating profit
499 
523 
398 
  
1,530 
814 
             
             
Analysis of income by product
            
Personal advances
260 
278 
248 
  
813 
718 
Personal deposits
236 
257 
277 
  
747 
831 
Mortgages
576 
581 
527 
  
1,700 
1,427 
Cards
231 
243 
243 
  
712 
711 
Other, including bancassurance
63 
60 
88 
  
193 
269 
             
Total income
1,366 
1,419 
1,383 
  
4,165 
3,956 
             
             
Analysis of impairments by sector
            
Mortgages
34 
55 
55 
  
150 
147 
Personal
120 
106 
150 
  
321 
551 
Cards
41 
47 
46 
  
126 
240 
             
Total impairment losses
195 
208 
251 
  
597 
938 
             
             
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) by sector
            
Mortgages
0.1% 
0.2% 
0.2%
  
0.2% 
0.2% 
Personal
4.7% 
3.9% 
4.8%
  
4.2% 
5.9% 
Cards
2.9% 
3.4% 
3.0%
  
3.0% 
5.2% 
             
Total
0.7% 
0.8% 
0.9%
  
0.7% 
1.2% 
 




 
UK Retail (continued)
 
Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Performance ratios
            
Return on equity (1)
26.7% 
27.6% 
21.2% 
  
26.8% 
14.1% 
Net interest margin
3.90% 
4.00% 
3.99% 
  
3.98% 
3.87% 
Cost:income ratio
49% 
48% 
51% 
  
49% 
55% 
Adjusted cost:income ratio (2)
49% 
48% 
53% 
  
49% 
56% 
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers (gross)
            
  - mortgages
94.2 
94.0 
- 
  
90.6 
4% 
  - personal
10.3 
10.8 
(5%)
  
11.7 
(12%)
  - cards
5.6 
5.6 
- 
  
6.1 
(8%)
             
 
110.1 
110.4 
- 
  
108.4 
2% 
Customer deposits (excluding bancassurance)
98.6 
95.9 
3% 
  
96.1 
3% 
Assets under management (excluding
  deposits)
5.6 
5.8 
(3%)
  
5.7 
(2%)
Risk elements in lending
4.7 
4.6 
2% 
  
4.6 
2% 
Loan:deposit ratio (excluding repos)
109% 
112% 
(300bp)
  
110% 
(100bp)
Risk-weighted assets
48.7 
49.5 
(2%)
  
48.8 
- 
 
Notes:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).
(2)
Adjusted cost:income ratio is based on total income after netting insurance claims and operating expenses.
 
Key points
UK Retail's transformation into the UK's most helpful and sustainable bank picked up speed during Q3 2011, with good progress on reducing branch queuing, improving telephone services and reducing complaints.
 
With an uncertain economic environment and difficult financial market conditions across Europe, the third quarter was characterised by an additional focus on deposit gathering. UK Retail achieved good balance growth during the period, including successful fixed rate bond sales, though in a competitive pricing environment this growth came at the cost of margin.
 
There has been positive feedback from RBS customers following the introduction of the facility to obtain emergency cash and on the new packaged accounts. UK Retail continued to develop mobile banking applications and online functionality by developing iPad, Blackberry and Android applications for customers.
 




 
UK Retail (continued)
 
Key points (continued)
 
Q3 2011 compared with Q2 2011
·
Operating profit of £499 million in Q3 2011 was £24 million lower than in the previous quarter. Income fell 4%, £53 million, though this was partly offset by a reduction in costs of 2%, £16 million and impairment losses of 6%, £13 million. Return on equity was 26.7% compared with 27.6% in Q2 2011.
   
·
UK Retail achieved strong customer deposit growth of £2.7 billion in the quarter. Fixed rate bond offerings helped deliver strong savings deposit balance growth in Q3 2011. Mortgage balances increased marginally in the quarter and RBS's share of gross new lending was 8% in the quarter, in line with its share of stock, at 8%. Unsecured lending declined 3% in the quarter as the Group continue to focus on lower risk secured lending. Strong deposit growth contributed to the fall in the loan to deposit ratio to 109%.
   
·
Net interest income fell 1%, £12 million in the quarter driven by a fall in deposit income due to continued lower long-term swap rate returns on current account balances and strong savings balance growth. Net interest margin declined 10 basis points to 3.90% driven by this reduction in the liability margin.
   
·
Non-interest income declined by 12%, £41 million, on Q2 2011 driven by reductions in transactional fees, and investment product related income. Seasonal factors, largely related to ISA sales, attributed to an uplift in income in Q2 2011, which was not repeated in Q3 2011. Non-interest income was further negatively impacted by lower consumer spending and investment confidence in Q3 2011, linked to the current state of the economy and the market, respectively.
   
·
Overall expenses decreased by 2%, or £16 million quarter on quarter. Direct costs fell by 5% due to headcount reductions and continued efficiency benefits. Indirect costs remained flat, reflecting high inflationary increases in utility and mail costs offset by further cost saving initiatives.
   
·
Impairment losses fell by 6% or £13 million during the period.
 
○
Mortgage impairment losses were £34 million on a total book of £94 billion, a £21 million reduction quarter-on-quarter. Arrears rates were stable and remained below the Council of Mortgage Lenders industry average.
 
○
The unsecured portfolio impairment charge increased 5% to £161 million, on a book of almost £16 billion, as there were lower provision surplus releases on the already defaulted book compared with Q2 2011. Underlying default levels were slightly lower quarter-on-quarter. Industry benchmarks for cards arrears remain stable, with RBS continuing to perform better than the market.
   
·
Risk-weighted assets decreased 2% in the quarter, primarily reflecting lower balances and improved quality within the unsecured portfolio, partly offset by volume growth in lower risk secured mortgages.
 




 
UK Retail (continued)
 
Key points (continued)
 
Q3 2011 compared with Q3 2010
·
Operating profit increased by £101 million, with income down 1%, costs down 8% and impairments 22% lower than in Q3 2010.
   
·
Net interest income was 2% higher than Q3 2010, with strong mortgage balance growth and recovering asset margins across all products, partially offset by continued competitive pressure on savings margins and continued lower long term swap rate returns adversely impacting current account income.
   
·
Savings balances were up 10% on Q3 2010, significantly outperforming the market which remains highly competitive. The strong savings growth contributed to an improvement in the loan to deposit ratio from 115% to 109%.
   
·
Non-interest income declined by 11%, £35 million primarily driven by lower investment income as a result of the dissolution of the UK Retail bancassurance joint venture.
   
·
Costs were 8% lower than in Q3 2010, reflecting continued implementation of process efficiencies, lower Financial Services Compensation Scheme charges and the impact of the dissolution of the bancassurance joint venture. The adjusted cost:income ratio improved from 53% to 49%.
   
·
Impairment losses decreased by 22% on Q3 2010, primarily reflecting improvements in default rates on the unsecured book. Q3 2010 also included additional charges on the already defaulted book.
 
 



 
UK Corporate
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
621 
641 
662 
  
1,951 
1,919 
             
Net fees and commissions
244 
231 
244 
  
719 
701 
Other non-interest income
83 
94 
80 
  
265 
292 
             
Non-interest income
327 
325 
324 
  
984 
993 
             
Total income
948 
966 
986 
  
2,935 
2,912 
             
Direct expenses
            
  - staff
(184)
(199)
(186)
  
(585)
(580)
  - other
(88)
(71)
(81)
  
(249)
(266)
Indirect expenses
(147)
(133)
(139)
  
(411)
(394)
             
 
(419)
(403)
(406)
  
(1,245)
(1,240)
             
Operating profit before impairment losses
529 
563 
580 
  
1,690 
1,672 
Impairment losses
(228)
(218)
(158)
  
(551)
(542)
             
Operating profit
301 
345 
422 
  
1,139 
1,130 
             
             
Analysis of income by business
            
Corporate and commercial lending
647 
666 
651 
  
2,042 
1,941 
Asset and invoice finance
176 
163 
163 
  
491 
451 
Corporate deposits
172 
171 
183 
  
513 
544 
Other
(47)
(34)
(11)
  
(111)
(24) 
             
Total income
948 
966 
986 
  
2,935 
2,912 
             
             
Analysis of impairments by sector
            
Banks and financial institutions
6 
13 
15 
  
22 
8 
Hotels and restaurants
22 
13 
6 
  
43 
34 
Housebuilding and construction
29 
15 
62 
  
76 
84 
Manufacturing
9 
6 
2 
  
21 
10 
Other
36 
89 
19 
  
126 
139 
Private sector education, health, social work, recreational and community services
20 
1 
1 
  
32 
9 
Property
82 
51 
34 
  
151 
161 
Wholesale and retail trade, repairs
24 
16 
14 
  
56 
60 
Asset and invoice finance
- 
14 
5 
  
24 
37 
             
Total impairment losses
228 
218 
158 
  
551 
542 
 




 
UK Corporate (continued)
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) by sector
            
Banks and financial institutions
0.4% 
0.9% 
1.0% 
  
0.5% 
0.2% 
Hotels and restaurants
1.4% 
0.8% 
0.3% 
  
0.9% 
0.7% 
Housebuilding and construction
2.9% 
1.4% 
5.5% 
  
2.5% 
2.5% 
Manufacturing
0.8% 
0.5% 
0.2% 
  
0.6% 
0.3% 
Other
0.4% 
1.1% 
0.2% 
  
0.5% 
0.6% 
Private sector education, health, social work,
  recreational and community services
0.9% 
- 
- 
  
0.5% 
0.1% 
Property
1.1% 
0.7% 
0.5% 
  
0.7% 
0.7% 
Wholesale and retail trade, repairs
1.1% 
0.7% 
0.5% 
  
0.8% 
0.8% 
Asset and invoice finance
- 
0.6% 
0.2% 
  
0.3% 
0.5% 
             
Total
0.8% 
0.8% 
0.6% 
  
0.7% 
0.6% 
 
Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Performance ratios
            
Return on equity (1)
11.1% 
12.3% 
14.1% 
  
13.1% 
12.2% 
Net interest margin
2.48% 
2.55% 
2.56% 
  
2.59% 
2.49% 
Cost:income ratio
44% 
42% 
41% 
  
42% 
43% 
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Total third party assets
112.7 
113.6 
(1%)
  
114.6 
(2%)
Loans and advances to customers (gross)
            
  - banks and financial institutions
5.7 
5.9 
(3%)
  
6.1 
(7%)
  - hotels and restaurants
6.3 
6.5 
(3%)
  
6.8 
(7%)
  - housebuilding and construction
4.0 
4.2 
(5%)
  
4.5 
(11%)
  - manufacturing
4.7 
4.9 
(4%)
  
5.3 
(11%)
  - other
32.6 
32.2 
1% 
  
31.0 
5% 
  - private sector education, health, social
    work, recreational and community services
8.7 
8.8 
(1%)
  
9.0 
(3%)
  - property
29.0 
29.2 
(1%)
  
29.5 
(2%)
  - wholesale and retail trade, repairs
8.9 
9.2 
(3%)
  
9.6 
(7%)
  - asset and invoice finance
10.1 
9.9 
2% 
  
9.9 
2% 
             
 
110.0 
110.8 
(1%)
  
111.7 
(2%)
             
Customer deposits
98.9 
99.5 
(1%)
  
100.0 
(1%)
Risk elements in lending
4.9 
4.8 
2% 
  
4.0 
23% 
Loan:deposit ratio (excluding repos)
109% 
109% 
- 
  
110% 
(100bp)
Risk-weighted assets
75.7 
77.9 
(3%)
  
81.4 
(7%)
 
Note:
(1)
Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).
 




 
UK Corporate (continued)
 
Key points
UK Corporate continues to support UK businesses through a challenging economic climate.
 
In Q3 2011, following the August riots, UK Corporate responded with a number of emergency measures to support SME customers. On 3 November we launched a new loan product to support our SME customers with low fixed interest rates, no early repayment charges and, for a limited three month period, no initial fees.
 
The division has worked closely with over 2,000 customers so far this year (600 in the quarter) to help reduce banking operations complexity and improve efficiency. The benefits include converting 30,000 cheques to BACS payments, migrating 22,000 credits from branch counters and reducing manual payments by 2,000 per annum.
 
Q3 2011 also saw UK Corporate's strategic investment programme deliver two new deposit products. The Managed Rate account enables customers to manage their liquidity requirements on a day by day basis. Since launch, £3 billion of base rate balances have migrated to the Managed Rate product.  Additionally, an education sector specific product suite, offering attractively priced products and a deposit structure better suited to the sector's unique needs was also launched during the quarter.
 
Q3 2011 compared with Q2 2011
·
Operating profit of £301 million was £44 million, 13%, lower, with adverse movements in lending income, costs and impairments. 
   
·
Net interest income fell by 3%, impacted by a small reduction in lending volumes and marginally higher costs of funding. Net interest margin declined by 7 basis points in the quarter.
   
·
Non-interest income remained broadly in line with Q2 2011 with higher Global Banking & Markets (GBM) revenue share income largely offset by the non-repeat of modest asset disposal gains recognised in Q2 2011.
   
·
Total costs increased 4% due to an operational loss recovery in Q2 2011 and higher operational costs of managing the non-performing book, partially offset by lower discretionary staff costs in Q3 2011.
   
·
Impairments increased £10 million due to lower latent provision releases and higher collective provisions on the SME book, partially offset by a fall in specific provisions in the quarter.
 
Q3 2011 compared with Q3 2010
·
Operating profit decreased by £121 million, 29%, primarily driven by increased impairments and higher costs of funding.
   
·
Net interest income fell 6%, reflecting increased funding costs together with a 3% fall in net lending balances. This was partially offset by further re-pricing of the lending portfolio. Deposit growth of 1% supported an improvement in the loan to deposit ratio from 114% to 109%.    
   
·
Non-interest income was £3 million higher as a result of a rise in GBM revenue share and Invoice Finance income, partially offset by lower fee income.
   
·
Expenses increased £13 million, 3%, primarily driven by higher operational costs of managing the non-performing book, increased costs associated with GBM cross-sales and increased marketing spend to support strategic customer initiatives.
   
·
Impairments were £70 million or 44% higher primarily driven by an increased flow into collectively assessed balances.


 
Wealth
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
178 
182 
156 
  
527 
449 
             
Net fees and commissions
95 
94 
90 
  
286 
282 
Other non-interest income
23 
21 
18 
  
61 
54 
             
Non-interest income
118 
115 
108 
  
347 
336 
             
Total income
296 
297 
264 
  
874 
785 
             
Direct expenses
            
  - staff
(106)
(111)
(95)
  
(317)
(286)
  - other
(57)
(51)
(39)
  
(152)
(113)
Indirect expenses
(58)
(58)
(55)
  
(168)
(157)
             
 
(221)
(220)
(189)
  
(637)
(556)
             
Operating profit before impairment losses
75 
77 
75 
  
237 
229 
Impairment losses
(4)
(3)
(1)
  
(12)
(12)
             
Operating profit
71 
74 
74 
  
225 
217 
             
Analysis of income
            
Private banking
244 
245 
217 
  
720 
637 
Investments
52 
52 
47 
  
154 
148 
             
Total income
296 
297 
264 
  
874 
785 
 
Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Performance ratios
            
Return on equity (1)
16.3% 
17.4% 
18.2% 
  
17.5% 
18.1% 
Net interest margin
3.46% 
3.61% 
3.41% 
  
3.51% 
3.40% 
Cost:income ratio
75% 
74% 
72% 
  
73% 
71% 
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers (gross)
            
  - mortgages
8.3 
8.2 
1% 
  
7.8 
6% 
  - personal
7.2 
7.0 
3% 
  
6.7 
7% 
  - other
1.5 
1.6 
(6%)
  
1.6 
(6%)
             
 
17.0 
16.8 
1% 
  
16.1 
6% 
Customer deposits (2)
37.4 
37.3 
- 
  
37.1 
1% 
Assets under management (excluding
  deposits) (2)
29.9 
34.3 
(13%)
  
33.9 
(12%)
Risk elements in lending
0.2 
0.2 
- 
  
0.2 
- 
Loan:deposit ratio (excluding repos) (2)
45% 
45% 
- 
  
43% 
200bp 
Risk-weighted assets
13.0 
12.9 
1% 
  
12.5 
4% 
 
Notes:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).
(2)
31 December 2010 comparatives have been revised to reflect the current reporting methodology.
 
Wealth (continued)
 
Key points
Q3 2011 has seen continued execution of the Wealth strategy as announced in Q1 2011.
 
Plans to refresh the Coutts brand were finalised in the quarter with the initial launch in the UK market scheduled for Q4 2011. The new brand will bring Coutts UK and RBS Coutts under one single contemporary Coutts brand.
 
The Wealth divisional strategy focuses on territories where the businesses have the opportunity for greatest scale or growth and during Q3 2011 the refocus on target markets was completed. The division also furthered plans to enhance its propositions in strategic international markets such as Asia, the Middle East, and Eastern Europe.
 
In products and services further work was undertaken on the development of propositions for the diverse segments in the UK and International markets and the division continues to look to optimise how new products and services are delivered across multiple markets. The RBS Group provides significant opportunity to leverage synergies across divisions and Wealth continues to look at the connectivity potential with relevant businesses.
 
Strategic investment in technology continued in Q3 2011, in particular with the finalisation of plans to deploy a new class-leading global banking platform in the UK, Further technology solutions continue to be assessed to enhance client experience, client to advisor interaction, and advisor to advisor collaboration.
 
Q3 2011 compared with Q2 2011
·
Operating profit fell 4% to £71 million in the third quarter as a result of stable income and a small rise in impairments.
   
·
Income remained stable as a 3% increase in non-interest income was offset by a 2% decline in net interest income. The growth in non-interest income reflects strong foreign exchange dealing income, primarily driven by movements in Swiss franc exchange rates during the quarter. Net interest income declined despite continued growth in the lending book margin, as the division received lower internal reward for its funding surplus. This resulted in a 15 basis point decline in net interest margin.
   
·
Expenses remained flat in the quarter as increased regulatory costs were offset by discretionary cost management.
   
·
Client assets and liabilities managed by the division declined 5%. Lending volumes maintained their strong momentum, increasing a further 1% and deposit volumes remained stable. Assets under management declined 13% given adverse market movements, reflecting £3.2 billion of the movement, as well as net new business outflows of £1.2 billion as clients became cautious towards equities.
 




 
Wealth (continued)
 
Key points (continued)
 
Q3 2011 compared with Q3 2010
·
Operating profit declined 4% on prior year as a strong income performance was offset by higher expenses, reflecting continued investment in the division and adverse foreign exchange movements.
   
·
Income increased by 12% with growth in both net interest and non-interest income. Net interest income rose £22 million with a 5 basis point increase in net interest margin buttressed by robust growth in lending and deposit volumes. Non-interest income increased 9% with strong performances in foreign exchange dealing and investment income.
   
·
Expenses grew by 17%, reflecting the impact of the increased regulatory costs in Q3 2011, adverse movements in foreign exchange and significant investment in strategic initiatives and private banker recruitment.
   
·
Client asset and liabilities were up £0.4 billion, with continued growth in lending and deposits in a competitive environment.  This growth was partially offset by a 9% fall in assets under management, with tough market conditions reducing values by 11%, partially offset by 2% growth provided by net new business.
 
 




 
Global Transaction Services
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
276 
263 
257 
  
799 
711 
Non-interest income
300 
297 
411 
  
879 
1,212 
             
Total income
576 
560 
668 
  
1,678 
1,923 
             
Direct expenses
            
  - staff
(89)
(95)
(100)
  
(280)
(306)
  - other
(26)
(32)
(38)
  
(87)
(108)
Indirect expenses
(221)
(215)
(218)
  
(646)
(682)
             
 
(336)
(342)
(356)
  
(1,013)
(1,096)
             
Operating profit before impairment losses
240 
218 
312 
  
665 
827 
Impairment losses
(45)
(54)
(3)
  
(119)
(6)
             
Operating profit
195 
164 
309 
  
546 
821 
             
             
Analysis of income by product
            
Domestic cash management
216 
217 
216 
  
645 
611 
International cash management
220 
215 
200 
  
646 
578 
Trade finance
90 
78 
81 
  
241 
228 
Merchant acquiring
4 
4 
123 
  
11 
371 
Commercial cards
46 
46 
48 
  
135 
135 
             
Total income
576 
560 
668 
  
1,678 
1,923 
 
Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Performance ratios
            
Return on equity (1)
31.0% 
27.0% 
47.8% 
  
29.6% 
42.8% 
Net interest margin
5.33% 
5.63% 
6.67% 
  
5.61% 
6.98% 
Cost:income ratio
58% 
61% 
53% 
  
60% 
57% 
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Total third party assets
29.9 
30.2 
(1%)
  
25.2 
19% 
Loans and advances
19.5 
19.2 
2% 
  
14.4 
35% 
Customer deposits
71.4 
73.3 
(3%)
  
69.9 
2% 
Risk elements in lending
0.2 
0.3 
(33%)
  
0.1 
100% 
Loan:deposit ratio (excluding repos)
28% 
26% 
200bp 
  
21% 
700bp 
Risk-weighted assets
18.6 
18.8 
(1%)
  
18.3 
2% 
 
Note:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).




 
Global Transaction Services (continued)
 
Key points
In Q3 2011 Global Transaction Services (GTS) delivered revenue growth, careful cost management and resilient deposit performance.
 
GTS continued to deliver solutions to clients, for example, launching the new Liquidity Solutions Portal which gives clients the ability to view and control balances, forecast their cash positions and make effective liquidity and investment decisions in real time. The business also launched the new enhanced e-Invoicing solution, which received a 'Green Apple' award for environmental best practice from The Green Organisation.
 
Q3 2011 compared with Q2 2011
·
Operating profit increased 19%, driven by income growth, lower costs and impairment charges.
   
·
Income increased by 3% with good performance in trade finance and international cash management.
   
·
Total expenses decreased by 2%, reflecting tight management of discretionary costs whilst supporting investment in technology and support infrastructure.
   
·
Q3 2011 impairment losses of £45 million, which were largely related to additional provision on  an existing single name impairment, were down 17%.
   
·
Customer deposit levels held up well in a competitive environment, but were adversely affected by exchange rate movements.
 
Q3 2011 compared with Q3 2010
·
Operating profit fell 37%, in part reflecting the sale of Global Merchant Services (GMS), which completed on 30 November 2010. Adjusting for the disposal, operating profit decreased 24%, reflecting provision on a single name impairment.
   
·
Excluding GMS, income increased by 5% supported by the success of deposit-gathering initiatives and increased trade finance activity.
   
·
Excluding GMS, expenses increased by 16%, reflecting business improvement initiatives and investment in technology and support infrastructure.
   
·
Customer deposits were 9% higher at £71.4 billion, reflecting strong deposit volumes in domestic and international cash management, in a challenging competitive environment.
   
·
Third party assets increased by £5.7 billion, largely due to strong growth in trade finance and international cash management.
   
·
During Q3 2010, GMS recorded income of £120 million, total expenses of £67 million and an operating profit of £53 million.




 
Ulster Bank
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
185 
171 
192 
  
525 
574 
             
Net fees and commissions
41 
37 
38 
  
114 
116 
Other non-interest income
19 
14 
14 
  
48 
42 
             
Non-interest income
60 
51 
52 
  
162 
158 
             
Total income
245 
222 
244 
  
687 
732 
             
Direct expenses
            
  - staff
(55)
(57)
(54)
  
(168)
(180)
  - other
(17)
(17)
(18)
  
(52)
(57)
Indirect expenses
(65)
(68)
(62)
  
(195)
(200)
             
 
(137)
(142)
(134)
  
(415)
(437)
             
Operating profit before impairment losses
108 
80 
110 
  
272 
295 
Impairment losses
(327)
(269)
(286)
  
(1,057)
(785)
             
Operating loss
(219)
(189)
(176)
  
(785)
(490)
             
             
Analysis of income by business
            
Corporate
107 
117 
120 
  
337 
399 
Retail
116 
98 
124 
  
327 
341 
Other
22 
7 
- 
  
23 
(8)
             
Total income
245 
222 
244 
  
687 
732 
             
             
Analysis of impairments by sector
            
Mortgages
126 
78 
69 
  
437 
135 
Corporate
            
  - property
78 
66 
107 
  
241 
306 
  - other corporate
111 
103 
100 
  
334 
309 
Other lending
12 
22 
10 
  
45 
35 
             
Total impairment losses
327 
269 
286 
  
1,057 
785 
             
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) by sector
            
Mortgages
2.4% 
1.4% 
1.3% 
  
2.8% 
0.8% 
Corporate
            
  - property
6.1% 
5.0% 
8.1% 
  
6.3% 
7.7% 
  - other corporate
5.4% 
4.7% 
4.3% 
  
5.4% 
4.4% 
Other lending
3.2% 
5.5% 
2.4% 
  
4.0% 
2.7% 
             
Total
3.7% 
2.9% 
3.0% 
  
4.0% 
2.8% 
 




 
Ulster Bank (continued) 
 
Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Performance ratios
            
Return on equity (1)
(21.2%)
(19.7%)
(20.2%)
  
(27.1%)
(18.1%)
Net interest margin
1.85% 
1.69% 
1.88%
  
1.76% 
1.86% 
Cost:income ratio
56% 
64% 
55%
  
60% 
60%
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers (gross)
            
  - mortgages
20.7 
21.8 
(5%)
  
21.2 
(2%)
  - corporate
            
     - property
5.1 
5.3 
(4%)
  
5.4 
(6%)
     - other corporate
8.2 
8.7 
(6%)
  
9.0 
(9%)
  - other lending
1.5 
1.6 
(6%)
  
1.3 
15% 
             
 
35.5 
37.4 
(5%)
  
36.9 
(4%)
Customer deposits
23.4 
24.3 
(4%)
  
23.1 
1% 
Risk elements in lending
            
  - mortgages
2.1 
2.0 
5% 
  
1.5 
40% 
  - corporate
            
     - property
1.5 
1.1 
36% 
  
0.7 
114% 
     - other corporate
1.8 
1.8 
- 
  
1.2 
50% 
  - other lending
0.2 
0.2 
- 
  
0.2 
- 
             
Total risk elements in lending
5.6 
5.1 
10% 
  
3.6 
56% 
Loan:deposit ratio (excluding repos)
141% 
144% 
(300bp)
  
152% 
(1,100bp)
Risk-weighted assets
34.4 
36.3 
(5%)
  
31.6 
9% 
             
Spot exchange rate - €/£
1.162 
1.106 
    
1.160 
  
 
Note:
(1)
Divisional return on equity is based on divisional operating loss after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).
 
Key points
Ulster Bank's financial performance continues to be overshadowed by the challenging economic climate in Ireland, with impairments remaining elevated.
 
Progress has been made to identify growth opportunities in the Irish market over the medium term. To capitalise on these opportunities the business remains focused on deposit-gathering, targeting growth in sectors which leverage competitive advantage and cost efficiency.




 
Ulster Bank (continued) 
 
Key points (continued)
 
Q3 2011 compared with Q2 2011
·
Operating profit before impairment grew by £28 million in Q3 2011 to £108 million. However, higher impairment losses resulted in an increase in the operating loss for the quarter to £219 million.
   
·
Net interest income increased by £14 million reflecting a higher return on the bank's capital base, coupled with the impact of loan re-pricing, where progress continues to be made to improve customer margins, counteracting the impact of higher funding costs, contracting deposit margins and the non-performing loan book. Consequently, net interest margin rose by 16 basis points to 1.85%. Customer loan balances reduced marginally in the quarter on a constant currency basis.
   
·
Non-interest income rose by £9 million driven by a one-off foreign exchange gain during the quarter.
   
·
Expenses declined by £5 million, with direct costs falling by 4% on a constant currency basis reflecting continued discipline in managing the cost base. Indirect costs were 6% lower on a constant currency basis due to the non-repeat of a charge on the value of own property assets in Q2 2011.
   
·
Impairment losses increased by £58 million in the quarter primarily due to a further decline in asset values driving higher losses on defaulted assets in both the mortgage and corporate portfolios.
   
·
Customer deposit balances remained largely stable in the quarter on a constant currency basis despite rating downgrades and market uncertainty. This has resulted in an erosion of corporate balances, offset by growth in retail and SME deposits.
 
Q3 2011 compared with Q3 2010
·
Operating loss increased by £43 million driven by the impact of deteriorating credit quality on impairment losses. Operating profit before impairment losses was broadly flat.
   
·
Income decreased by 3% in constant currency terms reflecting a reduction in loan volumes coupled with the increased impact of the default portfolio.
   
·
Loans and advances to customers fell by 5% on a constant currency basis as redemptions outweighed new business demand. Customer deposits remained stable resulting in an improved loan to deposit ratio of 141%.
   
·
Expenses decreased by 5% in constant currency terms driven by cost reduction actions initiated to mitigate the underlying business performance.
   
·
Risk-weighted assets increased by 6% on a constant currency basis due to deterioration in the risk metrics of both the retail and corporate lending portfolios.
   
·
Customer numbers increased by 3% overall, with a 3% increase in consumer banking and a 2% increase in SME and corporate customers.
   
·
Impairment losses increased by £41 million primarily due to a decline in asset values driving higher losses in the mortgage portfolio.
 




 
US Retail & Commercial (£ Sterling)
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
483 
469 
480 
  
1,403 
1,450 
             
Net fees and commissions
190 
185 
180 
  
545 
560 
Other non-interest income
67 
61 
91 
  
201 
238 
             
Non-interest income
257 
246 
271 
  
746 
798 
             
Total income
740 
715 
751 
  
2,149 
2,248 
             
Direct expenses
            
  - staff
(206)
(205)
(214)
  
(608)
(580)
  - other
(152)
(135)
(148)
  
(411)
(445)
Indirect expenses
(183)
(182)
(191)
  
(548)
(569)
             
 
(541)
(522)
(553)
  
(1,567)
(1,594)
             
Operating profit before impairment losses
199 
193 
198 
  
582 
654
Impairment losses 
(84)
(66)
(125)
  
(260)
(412)
             
Operating profit
115 
127 
73 
  
322 
242
             
             
Average exchange rate - US$/£
1.611 
1.631 
1.551 
  
1.614 
1.534 
             
Analysis of income by product
            
Mortgages and home equity
119 
108 
142 
  
336 
381 
Personal lending and cards
111 
108 
127 
  
326 
363 
Retail deposits
236 
231 
223 
  
683 
697 
Commercial lending
149 
147 
145 
  
433 
439 
Commercial deposits
75 
72 
78 
  
216 
245 
Other
50 
49 
36 
  
155 
123 
             
Total income
740 
715 
751 
  
2,149 
2,248 
             
Analysis of impairments by sector
            
Residential mortgages
7 
13 
14 
  
26 
55 
Home equity
29 
11 
56 
  
80 
100 
Corporate and commercial
7 
22 
23 
  
46 
148 
Other consumer
11 
9 
28 
  
40 
91 
Securities
30 
11 
4 
  
68 
18 
             
Total impairment losses
84 
66 
125 
  
260 
412 
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) by sector
            
Residential mortgages
0.5% 
0.9% 
0.9% 
  
0.6% 
1.2% 
Home equity
0.8% 
0.3% 
1.5% 
  
0.7% 
0.9% 
Corporate and commercial
0.1% 
0.4% 
0.5% 
  
0.3% 
1.0% 
Other consumer
0.7% 
0.6% 
1.6% 
  
0.8% 
1.8% 
             
Total
0.4% 
0.5% 
1.0% 
  
0.5% 
1.1% 
 
 




 
US Retail & Commercial (£ Sterling) (continued)
 
Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Performance ratios
            
Return on equity (1)
6.0% 
6.8% 
3.3% 
  
5.7% 
3.6% 
Net interest margin
3.09% 
3.11% 
2.89% 
  
3.07% 
2.80% 
Cost:income ratio
73% 
73% 
74% 
  
73% 
71% 
 
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Total third party assets
72.9 
70.9 
3% 
  
71.2 
2% 
Loans and advances to customers (gross) 
            
  - residential mortgages
5.9 
5.7 
4% 
  
6.1 
(3%)
  - home equity
14.9 
14.6 
2% 
  
15.2 
(2%)
  - corporate and commercial
22.1 
21.3 
4% 
  
20.4 
8% 
  - other consumer
6.6 
6.3 
5% 
  
6.9 
(4%)
             
 
49.5 
47.9 
3% 
  
48.6 
2% 
Customer deposits (excluding repos)
58.5 
56.5 
4% 
  
58.7 
- 
Risk elements in lending
            
  - retail
0.6 
0.5 
20% 
  
0.4 
50% 
  - commercial
0.4 
0.4 
- 
  
0.5 
(20%)
             
Total risk elements in lending
1.0 
0.9 
11% 
  
0.9 
11% 
Loan:deposit ratio (excluding repos)
83% 
83% 
- 
  
81% 
200bp 
Risk-weighted assets
56.5 
54.8 
3% 
  
57.0 
(1%)
             
Spot exchange rate - US$/£
1.562 
1.607 
    
1.552 
  
 
Note:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).
 
Key points
·
Sterling weakened relative to the US dollar during the third quarter with the average exchange rate decreasing by 1%.
   
·
Performance is described in full in the US dollar-based financial statements set out on pages 40 and 41.
 




 
US Retail & Commercial (US Dollar)
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
$m 
$m 
$m 
  
$m 
$m 
             
Income statement
            
Net interest income
778 
764 
745 
  
2,265 
2,223 
             
Net fees and commissions
306 
301 
280 
  
880 
859 
Other non-interest income
109 
100 
139 
  
325 
365 
             
Non-interest income
415 
401 
419 
  
1,205 
1,224 
             
Total income
1,193 
1,165 
1,164 
  
3,470 
3,447 
             
Direct expenses
            
  - staff
(332)
(335)
(332)
  
(982)
(890)
  - other
(245)
(220)
(230)
  
(663)
(683)
Indirect expenses
(295)
(297)
(296)
  
(885)
(872)
             
 
(872)
(852)
(858)
  
(2,530)
(2,445)
             
Operating profit before impairment losses
321 
313 
306 
  
940 
1,002 
Impairment losses 
(136)
(107)
(193)
  
(420)
(631)
             
Operating profit
185 
206 
113 
  
520 
371 
             
             
Analysis of income by product
            
Mortgages and home equity
192 
175 
220 
  
542 
585 
Personal lending and cards
179 
176 
196 
  
526 
556 
Retail deposits
381 
377 
345 
  
1,104 
1,068 
Commercial lending
240 
240 
225 
  
699 
673 
Commercial deposits
121 
118 
122 
  
349 
376 
Other
80 
79 
56 
  
250 
189 
             
Total income
1,193 
1,165 
1,164 
  
3,470 
3,447 
             
Analysis of impairments by sector
            
Residential mortgages
12 
21 
22 
  
42 
85 
Home equity
48 
19 
88 
  
131 
154 
Corporate and commercial
11 
35 
35 
  
74 
225 
Other consumer
17 
16 
42 
  
66 
139 
Securities
48 
16 
6 
  
107 
28 
             
Total impairment losses
136 
107 
 193 
  
420 
631 
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) by sector
            
Residential mortgages
0.5% 
0.9% 
0.9% 
  
0.6% 
1.2% 
Home equity
0.8% 
0.3% 
1.5% 
  
0.7% 
0.9% 
Corporate and commercial
0.1% 
0.4% 
0.5% 
  
0.3% 
1.0% 
Other consumer
0.7% 
0.6% 
1.6% 
  
0.8% 
1.7% 
             
Total
0.5% 
0.5% 
1.0% 
  
0.5% 
1.1% 
 




 
US Retail & Commercial (US Dollar) (continued)
 
Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Performance ratios
            
Return on equity (1)
6.0% 
6.8% 
3.3% 
  
5.7% 
3.6% 
Net interest margin
3.09% 
3.11% 
2.89% 
  
3.07% 
2.80% 
Cost:income ratio
73% 
73% 
74% 
  
73% 
71% 
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
$bn 
$bn 
Change 
  
$bn 
Change 
             
Capital and balance sheet
            
Total third party assets
113.8 
113.9 
- 
  
110.5 
3% 
Loans and advances to customers (gross) 
            
  - residential mortgages
9.1 
9.2 
(1%)
  
9.4 
(3%)
  - home equity
23.3 
23.5 
(1%)
  
23.6 
(1%)
  - corporate and commercial
34.5 
34.0 
1% 
  
31.7 
9% 
  - other consumer
10.4 
10.2 
2% 
  
10.6 
(2%)
             
 
77.3 
76.9 
1% 
  
75.3 
3% 
Customer deposits (excluding repos)
91.3 
90.7 
1% 
  
91.2 
- 
Risk elements in lending
            
  - retail
0.9 
0.9 
- 
  
0.7 
29% 
  - commercial
0.6 
0.6 
- 
  
0.7 
(14%)
             
Total risk elements in lending
1.5 
1.5 
- 
  
1.4 
7% 
Loan:deposit ratio (excluding repos)
83% 
83% 
- 
  
81% 
200bp 
Risk-weighted assets
88.2 
88.1 
- 
  
88.4 
- 
 
Note:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of monthly average of divisional RWAs, adjusted for capital deductions).
 
Key points
US Retail & Commercial continued to focus on its "back-to-basics" strategy, with good progress made in developing the division's customer franchise during 2011. The bank has continued to re-energise the franchise through new branding, product development and competitive pricing.
 
Consumer Finance continues to strengthen its alignment with branch banking, further improving the penetration of products to deposit households, which has increased over nine consecutive quarters. In addition, Consumer continues to improve its penetration of the on-line banking market, while also focusing on growing its auto, business banking, education finance and wealth management businesses.
 
The Commercial Banking business continues to achieve good momentum through a refreshed sales training programme, benefiting over 900 employees so far, an improved product offering and further improvements in the cross-sell of Global Transaction Services (GTS) products to its customer base.
 
Furthermore, Commercial Banking took an important step forward in branding, by unifying under the RBS Citizens brand, helping to ensure that customers and prospects understand both the depth of local expertise and the breadth of global capabilities.




 
US Retail & Commercial (US Dollar) (continued)
 
Key points (continued)
 
Q3 2011 compared with Q2 2011
·
US Retail & Commercial posted an operating profit of $185 million compared with $206 million in the prior quarter, a decrease of $21 million, or 10% driven by an increase in mortgage servicing rights impairment ($23 million) and higher securities impairments ($32 million). Excluding these items, operating profit was up $34 million, or 15%.
   
·
The macroeconomic operating environment remained challenging, with low rates, high unemployment, a soft housing market, sluggish consumer activity and the continuing impact of legislative changes.  While short term rates remained low, there was also a significant flattening of the yield curve as the 10 year Treasury rate dropped 130 basis points from a quarter high of 3.22%, ending the quarter at 1.92%.
   
·
Net interest income was up $14 million, or 2%. Product net interest income was in line with the previous quarter.  Loans and advances were up slightly from the previous quarter due to strong growth in commercial loan volumes, partly offset by some continued planned run-off of long term fixed rate consumer products.
   
·
Non-interest income was up $14 million, or 3%, reflecting higher mortgage banking income.
   
·
Total expenses were up $20 million, or 2%, reflecting an increase in mortgage servicing rights impairment of $23 million, driven by declining rates.
   
·
Impairment losses were up $29 million, or 27%, reflecting higher impairments ($32 million) related to securities.  Loan impairments as a percent of loans and advances were essentially unchanged and stable at 0.5%.
 
Q3 2011 compared with Q3 2010
·
Operating profit increased by 64% to $185 million substantially driven by lower impairments and improved net interest income.
   
·
Net interest income was up $33 million, or 4%. Net interest margin improved by 20 basis points to 3.09%, reflecting changes in deposit mix and continued discipline around deposit pricing as well as the positive impact of the balance sheet restructuring programme carried out during Q3 2010 combined with strong commercial loan growth partially offset by run-off of consumer loans.
   
·
Impairment losses declined by $57 million, or 30%, reflecting an improved credit environment partially offset by higher impairments related to securities. Loan impairments as a percentage of loans and advances improved to 0.5% from 1.0%.  
   
·
Customer deposits were down $4 billion, or 4%, reflecting the impact of a changed pricing strategy on low margin term and time products offset by strong checking balance growth.  Consumer checking balances grew by 4% while small business checking balances grew by 5% over the year.
   
·
Non-interest income was down $4 million, or 1%, reflecting lower mortgage banking income largely offset by increased commercial banking fee income and higher ATM fees as a result of new pricing initiatives. 
   
·
Total expenses were up $14 million, or 2%, reflecting an increase in mortgage servicing rights impairment of $23 million and costs related to regulatory challenges.
 




 
Global Banking & Markets
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income from banking activities
174 
178 
317 
  
545 
1,031 
             
Net fees and commissions receivable
289 
363 
411 
  
1,042 
1,070 
Income from trading activities
602 
922 
830 
  
3,276 
4,089 
Other operating income (net of related
  funding costs)
34 
87 
(4)
  
166 
135 
             
Non-interest income
925 
1,372 
1,237 
  
4,484 
5,294 
             
Total income
1,099 
1,550 
1,554 
  
5,029 
6,325 
             
Direct expenses
            
  - staff
(527)
(605)
(621)
  
(1,995)
(2,139)
  - other
(243)
(229)
(166)
  
(688)
(550)
Indirect expenses
(249)
(233)
(218)
  
(709)
(643)
             
 
(1,019)
(1,067)
(1,005)
  
(3,392)
(3,332)
             
Operating profit before impairment losses
80 
483 
549 
  
1,637 
2,993 
Impairment recoveries/(losses)
32 
(37)
40 
  
19 
(156)
             
Operating profit
112 
446 
589 
  
1,656 
2,837 
             
Analysis of income by product
            
Rates - money markets
(19)
(41)
38 
  
(134)
130 
Rates - flow
113 
357 
402 
  
1,203 
1,572 
Currencies
227 
234 
218 
  
685 
692 
Credit and mortgage markets
93 
437 
349 
  
1,415 
1,782 
             
Fixed income & currencies
414 
987 
1,007 
  
3,169 
4,176 
Portfolio management and origination
571 
329 
349 
  
1,237 
1,399 
Equities
114 
234 
198 
  
623 
750 
             
Total income
1,099 
1,550 
1,554 
  
5,029 
6,325 
             
Analysis of impairments by sector
            
Manufacturing and infrastructure
- 
(45)
34 
  
(77)
53 
Property and construction
(11)
- 
- 
  
(17)
(64)
Banks and financial institutions
44 
(2)
3 
  
65 
(123)
Other
(1)
10 
3 
  
48 
(22)
             
Total impairment recoveries/(losses)
32 
(37)
40 
  
19 
(156)
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements)
(0.2%)
0.2% 
(0.2%)
  
- 
0.2% 
 
 




 
Global Banking & Markets (continued)
 
Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Performance ratios
            
Return on equity (1)
2.3% 
8.7% 
11.6% 
  
10.7% 
18.8% 
Net interest margin
0.71% 
0.70% 
1.13% 
  
0.72% 
1.09% 
Cost:income ratio
93% 
69% 
65% 
  
67% 
53% 
Compensation ratio (2)
48% 
39% 
40% 
  
40% 
34% 
 
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers
73.1 
71.2 
3% 
  
75.1 
(3%)
Loans and advances to banks
34.1 
38.6 
(12%)
  
44.5 
(23%)
Reverse repos
100.6 
97.5 
3% 
  
94.8 
6% 
Securities
124.5 
141.5 
(12%)
  
119.2 
4% 
Cash and eligible bills
33.3 
32.8 
2% 
  
38.8 
(14%)
Other
33.0 
37.5 
(12%)
  
24.3 
36% 
             
Total third party assets (excluding derivatives
  mark-to-market)
398.6 
419.1 
(5%)
  
396.7 
- 
Net derivative assets (after netting)
45.6 
32.2 
42% 
  
37.4 
22% 
Customer deposits (excluding repos)
39.5 
35.7 
11% 
  
38.9 
2% 
Risk elements in lending
1.6 
1.5 
7% 
  
1.7 
(6%)
Loan:deposit ratio (excluding repos)
185% 
200% 
(1,500bp)
  
193% 
(800bp)
Risk-weighted assets
134.3 
139.0 
(3%)
  
146.9 
(9%)
 
Notes:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).
(2)
Compensation ratio is based on staff costs as a percentage of total income.
 
Key points
The ongoing European sovereign debt crisis and heightened concerns about growth expectations for the world economy caused market sentiment to deteriorate significantly during Q3 2011. Markets were volatile and generally pessimistic. Against this backdrop primary volumes were heavily depressed and opportunities in the secondary market were limited.  
 
During this challenging period, it is all the more important that customers are provided with the best possible service and that the division capitalises on its strengths. Therefore, GBM continues to focus on improving relationships with its clients, while managing its activities very tightly and ensuring that sound risk policies are in place. 




 
Global Banking & Markets (continued)
 
Key points (continued)
 
Q3 2011 compared with Q2 2011
·
A small operating profit of £112 million reflected a sharp reduction in revenue, which fell 29% to £1,099 million.   
   
·
The fall in revenue was caused by the deterioration in the market environment:
   
 
○
As in previous quarters, negative revenue in Rates-Money Markets reflected the cost of the division's funding activities, which more than offset revenue generated by the short-term markets business.
 
○
Rates-Flow fell significantly for the second quarter in a row.  Although client flow remained stable, trading margins were weak and a higher level of cost was incurred on the division's counterparty exposure management activities (circa £200 million).
 
○
Credit Markets recorded losses approaching £200 million during the quarter on the flow trading business as widening credit spreads resulted in mark-downs on a range of exposures.  The Mortgage business was also negatively impacted by lower client activity. 
 
○
Amidst a volatile and generally negative environment, Equities suffered from subdued client activity in both the primary and secondary markets.
 
○
The sharp increase in Portfolio Management and Origination income was driven by market derivative values. The underlying business weakened marginally as issuance volumes declined, partially offset by gains on portfolio hedging activities.
   
·
Total costs fell £48 million, as performance-related pay accruals were adjusted in response to the decline in revenue. This was partially offset by higher investment costs, primarily reflecting depreciation. The increase in compensation ratio reflected the low level of revenue compared with fixed staff costs.
   
·
Impairments generated a net credit, reflecting a single name provision release during the quarter. 
   
·
Third party assets were slightly below the targeted range of £400 - £450 billion, due to lower levels of activity and rigorous management of balance sheet exposures.
   
·
Risk-weighted assets decreased 3%, reflecting the ongoing focus on efficient capital deployment.
   
·
Return on equity was 2.3% driven by the fall in revenue.
 
Q3 2011 compared with Q3 2010
·
A sharp fall in operating profit reflected a 29% fall in revenue.
   
·
 
Rates-Flow and Credit Markets both suffered from the nervous and volatile credit environment during Q3 2011. Rates-Flow incurred higher costs on counterparty exposure management activities and Credit-Markets suffered losses on credit positions in the flow credit business.
   
·
Equities revenue declined as the market weakness limited client activity.
   
·
Staff costs declined as levels of performance-related pay fell as a result of the decline in revenue. The increase in other and indirect expenses is driven by higher investment spending and depreciation at both the divisional and group levels.




 
RBS Insurance
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Earned premiums
1,057 
1,056 
1,111 
  
3,178 
3,359 
Reinsurers' share
(67)
(60)
(36)
  
(181)
(108)
             
Net premium income
990 
996 
1,075 
  
2,997 
3,251 
Fees and commissions
(83)
(81)
(96)
  
(239)
(277)
Instalment income
35 
35 
39 
  
105 
121 
Other income
19 
27 
31 
  
81 
109 
             
Total income
961 
977 
1,049 
  
2,944 
3,204 
Net claims
(695)
(704)
(942)
  
(2,183)
(3,034)
             
Underwriting profit/(loss)
266 
273 
107 
  
761 
170 
             
Staff expenses
(67)
(70)
(72)
  
(213)
(215)
Other expenses
(88)
(79)
(77)
  
(254)
(248)
             
Total direct expenses
(155)
(149)
(149)
  
(467)
(463)
Indirect expenses
(60)
(54)
(66)
  
(170)
(193)
             
 
(215)
(203)
(215)
  
(637)
(656)
             
Technical result
51 
70 
(108)
  
124 
(486)
Investment income
72 
69 
75 
  
205 
200 
             
Operating profit/(loss)
123 
139 
(33)
  
329 
(286)
             
Analysis of income by product
            
Personal lines motor excluding broker
            
  - own brands
439 
438 
450 
  
1,317 
1,357 
  - partnerships
45 
57 
82 
  
175 
252 
Personal lines home excluding broker
            
  - own brands
117 
118 
120 
  
352 
354 
  - partnerships
94 
90 
93 
  
282 
288 
Personal lines other excluding broker
            
  - own brands
43 
46 
47 
  
135 
143 
  - partnerships
47 
48 
44 
  
141 
153 
Other
            
  - commercial
80 
80 
78 
  
234 
238 
  - international
91 
80 
79 
  
251 
234 
  - other (1)
5 
20 
56 
  
57 
185 
             
Total income
961 
977 
1,049 
  
2,944 
3,204 
 
Note:
(1)
Other predominantly consists of the discontinued personal lines broker business.




 
RBS Insurance (continued)
 
Key metrics                             
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
In-force policies (000s)
            
Personal lines motor excluding broker
            
  - own brands
3,832 
3,931 
4,276 
  
3,832 
4,276 
  - partnerships
388 
474 
698 
  
388 
698 
Personal lines home excluding broker
            
  - own brands
1,832 
1,844 
1,807 
  
1,832 
1,807 
  - partnerships
2,504 
2,524 
2,533 
  
2,504 
2,533 
Personal lines other excluding broker
            
  - own brands
1,886 
1,932 
2,027 
  
1,886 
2,027 
  - partnerships
7,714 
7,577 
6,527 
  
7,714 
6,527 
Other
            
  - commercial
410 
393 
363 
  
410 
363 
  - international
1,357 
1,302 
1,060 
  
1,357 
1,060 
  - other (1)
44 
211 
861 
  
44 
861 
             
Total in-force policies (2)
19,967 
20,188 
20,152 
  
19,967 
20,152 
             
Gross written premium (£m)
            
Personal lines motor excluding broker
            
  - own brands
438 
408 
458 
  
1,236 
1,277 
  - partnerships
36 
36 
70 
  
109 
198 
Personal lines home excluding broker
            
  - own brands
133 
117 
135 
  
362 
362 
  - partnerships
144 
135 
145 
  
417 
419 
Personal lines other excluding broker
            
  - own brands
48 
44 
49 
  
134 
137 
  - partnerships
48 
42 
43 
  
130 
120 
Other
            
  - commercial
101 
120 
90 
  
333 
301 
  - international
125 
134 
79 
  
428 
302 
  - other (1)
4 
(2)
59 
  
(1)
194 
             
Total gross written premium
1,077 
1,034 
1,128 
  
3,148 
3,310 
             
Performance ratios
            
Return on regulatory capital (3)
12.3% 
15.4% 
(3.5%)
  
11.0% 
(10.3%)
Return on equity (4)
11.0% 
12.9% 
(3.0%)
  
10.0% 
(8.6%)
Loss ratio (5)
70% 
71% 
88% 
  
72% 
93% 
Commission ratio (6)
8% 
8% 
9% 
  
8% 
8% 
Expense ratio (7)
20% 
20% 
19% 
  
21% 
20% 
Combined operating ratio (8)
98% 
99% 
116% 
  
101% 
121% 
             
Balance sheet
            
Total insurance reserves - total (£m) (9)
7,545 
7,557 
7,668 
      
 
Notes:
(1)
Other predominantly consists of the discontinued personal lines broker business.
(2)
Total in-force policies include travel and creditor policies sold through RBS Group. These comprise travel policies included in bank accounts e.g. Royalties Gold Account, and creditor policies sold with bank products including mortgage, loan and card repayment payment protection.
(3)
Return on regulatory capital required is based on annualised divisional operating profit/(loss) after tax divided by divisional average notional equity.
(4)
Return on equity is based on annualised divisional operating profit/(loss) after tax divided by divisional average tangible equity.
(5)
Loss ratio is based on net claims divided by net premium income.
(6)
Commission ratio is based on fees and commissions divided by gross written premium.
(7)
Expense ratio is based on expenses (excluding fees and commissions) divided by gross written premium.
(8)
Combined operating ratio is the sum of the loss, expense and commission ratios.
(9)
Consists of General and Life insurance liabilities, unearned premium reserve and liability adequacy reserve.




 
RBS Insurance (continued)
 
Key points
RBS Insurance continues to undertake a significant programme of investment, designed to achieve a substantial improvement in financial and operational performance ahead of its planned divestment from the Group. The results of the first phase of this transformation - to recover profitability - are now apparent after four successive quarters of year-on-year improvement. The clearest evidence of the recovery is in September YTD 2011 underwriting profit of £761 million, an increase of £591 million versus September YTD 2010, primarily driven by a substantial improvement in net claims. The loss ratio for the first 9 months of 2011 was 72% compared with 93% for the equivalent period in 2010.
 
RBS Insurance is also making good progress in building its competitive advantage through its investment programme and business transformation, the largest element of which is the transformation of claims operations.  Launched this year, the first phase of a new Claims Centre system now processes 100% of new Churchill home claims and 70% of all new Churchill, Direct Line, and Privilege motor claims.  This system is set to achieve a substantial uplift in operational and financial performance. The rollout of a rating engine, which is largely complete on motor, and new pricing tools will complement customer propositions in order to generate greater value from RBS Insurance's multi-brand, multi-distribution strategy. 
 
Implementation of the plan to rationalise the number of sites occupied, announced in 2010, continues, with 10 site exits to date.  Progress is also being made to simplify the legal entity structure, to improve the efficient use of capital and to facilitate compliance with the Solvency II regulations.
 
Investment markets remain challenging as yields on quality fixed income instruments remain low. RBS Insurance's investment portfolio is composed of high quality gilts and bonds and cash. Of the total portfolio of £9.7 billion, 1.5% is directly exposed to issuers in Spain, Italy and Ireland. There is no direct exposure to either Greece or Portugal.
 
In September 2011 it was announced by The Ministry of Justice that referral fees will be banned.  From a customer perspective, RBS Insurance is supportive of this proposal provided that there is a contemporaneous reduction in legal fees.
 
Overall, RBS Insurance is making good progress, has a positive momentum and is well positioned with powerful brands, coupled with a transformed claims function.  In personal lines the business will continue to look for partners that fit with its strategy of providing a full end-to-end service, while complementing its own business and distribution channels.  Elsewhere, RBS Insurance continues to develop its commercial and international divisions.
 
 
 
 
 
 
 
 
 
 
 
 
RBS Insurance (continued)
 
Key points (continued)
 
Q3 2011 compared with Q2 2011
·
Operating profit reduced by £16 million from the previous quarter as a result of seasonal trends, reduced other income and the phasing of expenses.
   
·
Overall gross written premium has increased by £43 million quarter-on-quarter. This was primarily driven by motor, up £30 million, due to seasonality, and home, up £25 million, as a result of higher web renewals on own brands and growing partnerships with Nationwide Building Society and the RBS branch network .  These increases were partially offset by a £19 million fall in commercial reflecting a seasonal high in Q2 2011.
   
·
The quarter saw continued income growth in the International business of £11 million principally due to the flow through of higher written premiums in Italy. Home income also increased, by £3 million. These increases partially offset the reductions in motor business from lower earned premiums together with the reduction in income from personal lines broker activities, which are in run-off. 
   
·
Claims decreased by £9 million, with lower motor claims volumes as a result of reduced accidental damage and third party property damage frequency.
   
·
Total direct expenses were up £6 million on the prior quarter primarily due to the phasing of marketing spend.
   
·
Investment income rose by £3 million in the quarter with realised gains on the sale of bonds partially offset by lower gilt yields.
   
·
The loss ratio reduced by 1% to 70%, the expense ratio remained at 20%, and the combined ratio improved by 1% to 98%.
 
Q3 2011 compared with Q3 2010
·
Operating profit was £123 million compared with a loss of £33 million for Q3 2010. The loss in Q3 2010 included reserve strengthening for bodily injury claims. The improved results were also attributable to the reduction in the risk of the book, selected business line exits, and pricing action taken.  These factors led to a £247 million improvement in claims year-on-year.
   
·
International in-force policies have increased by 28% year-on-year primarily driven by growth in Italy including a partnership with Fiat which commenced in Q4 2010.  Motor in-force policies have reduced by 15%, reflecting the continued de-risking activity over the same period. 
   
·
Overall gross written premium is down £51 million year-on-year. 
 
○
Motor gross written premium declined £54 million driven by continued de-risking of the book coupled with lower new business and lower average premiums as a result of improvements in mix.
 
○
Other gross written premium was down £55 million due to the exit of unprofitable business lines. 
 
○
International gross written premium was up £46 million, primarily driven by growth in volumes, including through the Fiat partnership Italy.
 
○
Commercial gross written premium increased £11 million, driven by growth in the property and liability books partially offset by a reduction in the van business.
·
Total income was down £88 million year-on-year, principally due to lower premium income and lower other income in motor driven by reduced volumes.
   
·
Other expenses were up £11 million due to the phasing of marketing spend. Total expenses were flat.




 
Central items 
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Central items not allocated
67 
47 
76 
  
71 
462 
 
Funding and operating costs have been allocated to operating divisions based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one division.
 
Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.
 
Key points
 
Q3 2011 compared with Q2 2011
·
Central items not allocated represented a credit of £67 million, an increase of £20 million on the previous quarter. This movement was driven by increased profits on bond disposals in Q3 2011 partially offset by non-repeat of the Q2 2011 gain on the sale of the investment in VISA.
 
Q3 2011 compared with Q3 2010
·
Central items not allocated represented a credit of £67 million, a decline of £9 million on Q3 2010 due to slightly lower bond disposal gains in Q3 2011.
 
 




 
Non-Core
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
164 
285 
438 
  
752 
1,540 
             
Net fees and commissions
(85)
47 
43 
  
9 
305 
(Loss)/income from trading activities
(246)
230 
219 
  
(314)
121 
Insurance net premium income
44 
95 
180 
  
277 
521 
Other operating income
            
  - rental income
182 
206 
166 
  
580 
534 
  - other (1)
(13)
115 
(176)
  
206 
(378)
             
Non-interest income
(118)
693 
432 
  
758 
1,103 
             
Total income
46 
978 
870 
  
1,510 
2,643 
             
Direct expenses
            
  - staff
(93)
(109)
(172)
  
(293)
(626)
  - operating lease depreciation
(82)
(87)
(126)
  
(256)
(344)
  - other
(62)
(68)
(133)
  
(199)
(432)
Indirect expenses
(86)
(71)
(130)
  
(233)
(373)
             
 
(323)
(335)
(561)
  
(981)
(1,775)
             
Operating (loss)/profit before other operating
  charges and impairment losses
(277)
643 
309 
  
529 
868 
Insurance net claims
(38)
(90)
(144)
  
(256)
(492)
Impairment losses
(682)
(1,411)
(1,171)
  
(3,168)
(4,265)
             
Operating loss
(997)
(858)
(1,006)
  
(2,895)
(3,889)
 
Note:
(1)
Includes losses on disposals (quarter ended 30 September 2011 - £37 million; quarter ended 30 June 2011 - £20 million; quarter ended 30 September 2010 - £253 million; nine months ended 30 September 2011 - £91 million; nine months ended 30 September 2010 - £257 million).
 
 




 
Non-Core (continued)
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Analysis of income/(loss)by business
            
Portfolios & banking
214 
830 
280 
  
1,642 
1,516 
International businesses
101 
137 
182 
  
327 
694 
Markets
(269)
11 
408 
  
(459)
433 
             
Total income
46 
978 
870 
  
1,510 
2,643 
             
(Loss)/income from trading activities
            
Monoline exposures
(230)
(67)
191 
  
(427)
52 
Credit derivative product companies
(5)
(21)
(15)
  
(66)
(101)
Asset-backed products (1)
(51)
36 
160 
  
51 
202 
Other credit exotics
(7)
8 
(2)
  
(167)
56 
Equities
(11)
(2)
(15)
  
(12)
(28)
Banking book hedges
73 
(9)
(123)
  
35 
(12)
Other (2)
(15)
285 
23 
  
272 
(48)
             
 
(246)
230 
219 
  
(314)
121 
             
Impairment losses
            
Portfolios & banking
656 
1,405 
1,159 
  
3,119 
4,070 
International businesses
17 
15 
25 
  
52 
141 
Markets
9 
(9)
(13)
  
(3)
54 
             
Total impairment losses
682 
1,411 
1,171 
  
3,168 
4,265 
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) (3)
            
Portfolios & banking
2.8% 
6.1% 
4.0% 
  
4.7% 
4.7% 
International businesses
2.7% 
1.9% 
1.5% 
  
2.8% 
2.9% 
Markets
(0.4%)
(1.2%)
0.2% 
  
(1.1%)
13.0% 
             
Total
2.8% 
6.0% 
3.9% 
  
4.6% 
4.7% 
 
Notes:
(1)
Asset-backed products include super senior asset-backed structures and other asset-backed products.
(2)
Q3 2011 includes profits in RBS Sempra Commodities JV of £1 million (quarter ended 30 September 2010 - £78 million). Q2 2011 includes securities gains of £362 million not repeated in Q3 2011.
(3)
Includes disposal groups.
 
 
 




 
Non-Core (continued)
 
Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
             
Performance ratios
            
Net interest margin
0.43% 
0.87% 
1.04% 
  
0.74% 
1.18% 
Cost:income ratio
nm 
34% 
64% 
  
65% 
67% 
Adjusted cost:income ratio
nm 
38% 
77% 
  
78% 
83% 
 
 
30 September 
2011 
30 June 
2011 
    
31 December 
2010 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet (1)
            
Total third party assets (excluding
  derivatives) (2)
105.1 
112.6 
(7%)
  
137.9 
(24%)
Total third party assets (including
  derivatives) (2)
117.7 
134.7 
(13%)
  
153.9 
(24%)
Loans and advances to customers (gross)
88.9 
94.9 
(6%)
  
108.4 
(18%)
Customer deposits
4.3 
5.0 
(14%)
  
6.7 
(36%)
Risk elements in lending
24.6 
24.9 
(1%)
  
23.4 
5% 
Risk-weighted assets (2)
117.9 
124.7 
(5%)
  
153.7 
(23%)
 
nm = not meaningful
 
Notes:
(1)
Includes disposal groups.
(2)
Includes RBS Sempra Commodities JV (30 September 2011 Third party assets, excluding derivatives (TPAs) £0.3 billion, RWAs £1.7 billion; 30 June 2011 TPAs £1.1 billion, RWAs £1.9 billion; 31 December 2010 TPAs £6.7 billion, RWAs £4.3 billion).
 
 
 
30 September 
2011 
30 June 
2011 
31 December 
2010 
 
£bn 
£bn 
£bn 
       
Gross customer loans and advances
      
Portfolios & banking
86.6 
92.1 
104.9 
International businesses
2.2 
2.7 
3.5 
Markets
0.1 
0.1 
- 
       
 
88.9 
94.9 
108.4 
       
Risk-weighted assets
      
Portfolios & banking
66.6 
72.6 
83.5 
International businesses
4.5 
5.2 
5.6 
Markets
46.8 
46.9 
64.6 
       
 
117.9 
124.7 
153.7 
 
 
 
 
 




 
Non-Core (continued)
 
Third party assets (excluding derivatives)
               
Quarter ended 30 September 2011
 
30 June 
2011 
Run-off 
Disposals/ 
restructuring 
Drawings/ 
roll overs 
Impairments 
FX 
30 September 
2011 
 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
               
Commercial real estate
36.6 
0.3 
(0.6)
0.2 
(0.5)
(0.7)
35.3 
Corporate
50.4 
(2.4)
(1.3)
0.5 
- 
(0.3)
46.9 
SME
2.7 
(0.3)
- 
- 
- 
- 
2.4 
Retail
8.0 
(0.3)
(0.3)
- 
(0.1)
0.1 
7.4 
Other
2.3 
(0.4)
- 
- 
- 
- 
1.9 
Markets
11.5 
(0.9)
(0.4)
0.6 
- 
0.1 
10.9 
               
Total (excluding derivatives)
111.5 
(4.0)
(2.6)
1.3 
(0.6)
(0.8)
104.8 
Markets - RBS Sempra
  Commodities JV
1.1 
- 
(0.8)
- 
- 
- 
0.3 
               
Total (1)
112.6 
(4.0)
(3.4)
1.3 
(0.6)
(0.8)
105.1 
                   
 
Quarter ended 30 June 2011
 
31 March 
2011 
Run-off 
Disposals/ 
restructuring 
Drawings/ 
roll overs 
Impairments 
FX 
30 June 
2011 
 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
               
Commercial real estate
38.7 
(1.1)
(0.3)
0.2 
(1.3)
0.4 
36.6 
Corporate
56.0 
(2.6)
(4.0)
0.6 
- 
0.4 
50.4 
SME
3.1 
(0.4)
- 
- 
- 
- 
2.7 
Retail
8.3 
(0.2)
- 
- 
(0.1)
- 
8.0 
Other
2.5 
(0.2)
- 
- 
- 
- 
2.3 
Markets
12.3 
(0.7)
(0.4)
0.3 
- 
- 
11.5 
               
Total (excluding derivatives)
120.9 
(5.2)
(4.7)
1.1 
(1.4)
0.8 
111.5 
Markets - RBS Sempra
  Commodities JV
3.9 
(0.5)
(2.2)
- 
- 
(0.1)
1.1 
               
Total (1)
124.8 
(5.7)
(6.9)
1.1 
(1.4)
0.7 
112.6 
 
Quarter ended 30 September 2010
 
30 June 
2010 
Run-off 
Disposals/ 
restructuring 
Drawings/ 
roll overs 
Impairments 
FX 
30 September 
2010 
 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
               
Commercial real estate
44.1 
2.9 
(0.3)
(0.2)
(1.2)
1.2 
46.5 
Corporate
70.4 
(2.8)
(2.4)
0.6 
0.1 
0.2 
66.1 
SME
4.7 
(0.8)
- 
- 
- 
- 
3.9 
Retail
16.8 
(6.2)
- 
- 
(0.1)
(0.2)
10.3 
Other
3.0 
(0.2)
(0.3)
0.1 
- 
- 
2.6 
Markets
22.3 
(1.4)
(4.4)
0.4 
- 
(0.4)
16.5 
               
Total (excluding derivatives)
161.3 
(8.5)
(7.4)
0.9 
(1.2)
0.8 
145.9 
Markets - RBS Sempra
  Commodities JV
12.7 
(0.5)
(3.3)
- 
- 
(0.6)
8.3 
               
Total (1)
174.0 
(9.0)
(10.7)
0.9 
(1.2)
0.2 
154.2 
 
Notes:
(1)
£1 billion of disposals have been signed as at 30 September 2011 but are pending completion (30 June 2011 - £2 billion; 30 September 2010 - £9 billion).
(2)
Business restructuring in Q3 2011 resulted in third party assets of £1 billion transferring from Corporate to Commercial Real Estate resulting in run-off totalling £0.3 billion in the quarter.
 
 
 




 
Non-Core (continued)
 
 
Quarter ended
  
Nine months ended
 
30 September 
2011 
30 June 
2011 
30 September 
2010 
  
30 September 
2011 
30 September 
2010 
 
£m 
£m 
£m 
  
£m 
£m 
             
Impairment losses by donating division
  and sector
            
             
UK Retail
            
Mortgages
1 
1 
1 
  
(1)
4 
Personal
1 
3 
4 
  
7 
6 
             
Total UK Retail
2 
4 
5 
  
6 
10 
             
UK Corporate
            
Manufacturing and infrastructure
3 
47 
5 
  
50 
21 
Property and construction
92 
36 
130 
  
141 
334 
Transport
- 
26 
26 
  
46 
23 
Banking and financial institutions
- 
1 
(8)
  
4 
18 
Lombard
12 
25 
25 
  
55 
79 
Invoice finance
- 
- 
(3)
  
- 
(3)
Other
18 
46 
(2)
  
75 
119 
             
Total UK Corporate
125 
181 
173 
  
371 
591 
             
Ulster Bank
            
Mortgages
- 
- 
(1)
  
- 
42 
Commercial real estate
            
  - investment
74 
161 
180 
  
458 
424 
  - development
162 
810 
415 
  
1,475 
1,163 
Other corporate
45 
6 
82 
  
158 
270 
Other EMEA
2 
5 
13 
  
13 
46 
             
Total Ulster Bank
283 
982 
689 
  
2,104 
1,945 
             
US Retail & Commercial
            
Auto and consumer
14 
12 
(2)
  
51 
45 
Cards
- 
(3)
2 
  
(10)
20 
SBO/home equity
57 
58 
57 
  
168 
226 
Residential mortgages
4 
6 
3 
  
14 
5 
Commercial real estate
(4)
11 
49 
  
26 
154 
Commercial and other
(1)
(6)
7 
  
(10)
15 
             
Total US Retail & Commercial
70 
78 
116 
  
239 
465 
             
Global Banking & Markets
            
Manufacturing and infrastructure
23 
(6)
(53)
  
15 
(305)
Property and construction
189 
217 
147 
  
511 
1,120 
Transport
(6)
(1)
8 
  
(13)
9 
Telecoms, media and technology
27 
34 
32 
  
50 
32 
Banking and financial institutions
(29)
(39)
5 
  
(67)
177 
Other
(1)
(36)
52 
  
(45)
177 
             
Total Global Banking & Markets
203 
169 
191 
  
451 
1,210 
             
Other
            
Wealth
1 
(1)
7 
  
1 
51 
Global Transaction Services
- 
(3)
(10)
  
(3)
(7)
Central items
(2)
1 
- 
  
(1)
- 
             
Total Other
(1)
(3)
(3)
  
(3)
44 
             
Total impairment losses
682 
1,411 
1,171 
  
3,168 
4,265 




 
Non-Core (continued)
 
 
30 September 
2011 
30 June 
2011 
31 December 
2010 
 
£bn 
£bn 
£bn 
       
Gross loans and advances to customers (excluding reverse
  repurchase agreements) by donating division and sector
      
       
UK Retail
      
Mortgages
1.4 
1.5 
1.6 
Personal
0.3 
0.3 
0.4 
       
Total UK Retail
1.7 
1.8 
2.0 
       
UK Corporate
      
Manufacturing and infrastructure
0.1 
0.3 
0.3 
Property and construction
6.5 
7.2 
11.4 
Transport
4.8 
5.0 
5.4 
Banking and financial institutions
0.5 
0.9 
0.8 
Lombard
1.2 
1.4 
1.7 
Invoice finance
- 
- 
- 
Other
7.5 
6.8 
7.4 
       
Total UK Corporate
20.6 
21.6 
27.0 
       
Ulster Bank
      
Commercial real estate
      
  - investment
3.9 
4.1 
4.0 
  - development
8.7 
9.0 
8.4 
Other corporate
1.7 
1.8 
2.2 
Other EMEA
0.4 
0.4 
0.4 
       
Total Ulster Bank
14.7 
15.3 
15.0 
       
US Retail & Commercial
      
Auto and consumer
1.9 
2.2 
2.6 
Cards
0.1 
0.1 
0.1 
SBO/home equity
2.6 
2.7 
3.2 
Residential mortgages
0.6 
0.7 
0.7 
Commercial real estate
1.1 
1.2 
1.5 
Commercial and other
0.5 
0.4 
0.5 
       
Total US Retail & Commercial
6.8 
7.3 
8.6 
       
Global Banking & Markets
      
Manufacturing and infrastructure
7.0 
8.5 
8.7 
Property and construction
17.8 
18.6 
19.6 
Transport
3.9 
4.2 
5.5 
Telecoms, media and technology
0.9 
0.8 
0.9 
Banking and financial institutions
8.3 
8.8 
12.0 
Other
6.7 
7.5 
9.0 
       
Total Global Banking & Markets
44.6 
48.4 
55.7 
       
Other
      
Wealth
0.3 
0.3 
0.4 
Global Transaction Services
0.3 
0.3 
0.3 
RBS Insurance
- 
- 
0.2 
Central items
(0.3)
(0.3)
(1.0)
       
Total Other
0.3 
0.3 
(0.1)
       
Gross loans and advances to customers (excluding reverse
  repurchase agreements)
88.7 
94.7 
108.2 
                                                                                                                          




 
Non-Core (continued)
 
Key points
Non-Core continues to deliver in a challenging and uncertain environment with further reductions in Q3 2011 in third party assets, risk weighted assets, impairment charges and headcount.
 
The division remains on track to reduce third party assets to £96 billion by the end of 2011 and continues to focus upon reducing required levels of capital and funding.
 
Income in Q3 2011 was significantly lower than Q2 2011 reflecting equity-related gains in Q2 not repeated in Q3, lower underlying revenue in line with balance sheet reduction, a one-off charge in relation to de-risking the portfolio and fair value write-downs reflecting market conditions. 
 
Despite ongoing difficulties in the commercial real estate sector and Ireland in particular, Q3 2011 impairment losses decreased by £729 million compared with Q2 2011.
 
Q3 2011 compared with Q2 2011
·
Non-Core continued to reduce the size of the balance sheet with third party assets declining by £8 billion to £105 billion. This reduction was principally driven by run-off of £4 billion and disposals of £3 billion.  At the end of the quarter £1 billion of deals were signed but not completed, compared with £2 billion at the end of Q2 2011. 
   
·
Risk-weighted assets fell by £7 billion in Q3 2011. The reduction principally reflected continued asset sales, run-off and impairments partially offset by foreign exchange movements. Specific portfolio de-risking also contributed towards the decline in the quarter.
   
·
Non-Core operating loss was £997 million in the third quarter, compared with £858 million in Q2 2011. Net interest income fell by £121 million reflecting a lower balance sheet, increased term funding and liquidity costs and the non-repeat of some recoveries in Q2 2011. The decline in non-interest income reflected the non-repeat of circa £500 million of valuation gains recorded in Q2 2011, and losses in trading income due to widening credit spreads on monoline and securities positions.
   
·
Impairments fell by £729 million from Q2 2011, reflecting substantial provisioning in relation to development land values in Ireland during Q2 2011 not repeated in Q3 2011.
   
·
Non-Core headcount continues to decline in line with disposal activity. Headcount reductions in Q3 2011 predominantly relate to Asia, Non-Core Insurance and RBS Sempra Commodities JV.
 
Q3 2011 compared with Q3 2010
·
Third party assets declined by £49 billion (32%) principally reflecting disposals (£29 billion) and run-off (£21 billion).
   
·
Risk-weighted assets were £49 billion lower, driven principally by significant disposal activity combined with run-off.
   
·
Market uncertainty resulted in higher losses on trading activities in Q3 2011 compared with Q3 2010, which included disposal gains on super senior assets and valuation gains in relation to monolines. In line with ongoing disposal and run-off activity, both net interest income and insurance premium income continue to decline.
   
·
Expenses and headcount continued to fall reflecting disposal activity principally in exit countries, RBS Sempra Commodities JV and Non-Core Insurance.

 


 

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: 4 November 2011
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary