##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISION
 WASHINGTON, D.C. 20549
 
 FORM 20-F
 (Mark One)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report  to
 Commission file number 0-25670
 Abbey National plc
  England
  Abbey National House, 2 Triton Square, Regents Place, London NW1 3AN, England
  Julian
Curtis
              10 3/8%
Non-cumulative Preference Shares of nominal value £1 each
    
    
    200,000,0008 5/8% Non-cumulative Preference Shares of nominal value £1 each
    
    
    125,000,000
 
  o þ
  o þ
  þ o
   o o þ
  o þ o
  o o
  o þ




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##### 



Contents
  
 Business Review and Forward-looking StatementsChief Executives Review
    
    
    2Forward-looking Statements
    
    
    4Business and Financial ReviewBusiness Overview
    
    
    5Business Review  Summary
    
    
    9Business Review  Personal Financial Services
    
    
    13Business Review  Sold Life Businesses
    
    
    19Other Material Items
    
    
    20Balance Sheet Business Review
    
    
    22Risk Management
    
    
    36Report of the DirectorsDirectors
    
    
    57Directors Report
    
    
    59Supervision and Regulation
    
    
    68Financial StatementsReport of Independent Registered Public Accounting Firm  US opinion
    
    
    71Primary Financial Statements
    
    
    72Accounting Policies
    
    
    77Notes to the Financial Statements
    
    
    95Selected Financial Data
    
    
    138Shareholder InformationRisk Factors
    
    
    141Taxation for US Investors
    
    
    145Share Information
    
    
    145Contact Information
    
    
    146Memorandum and Articles of Association
    
    
    146Cross Guarantee
    
    
    148Directors Responsibility Statement
    
    
    151Cross-reference to Form 20-F
    
    
    152Exhibit 4.1Exhibit 7.1Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 15.1
  1




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##### Table of Contents



Business Review and Forward-looking Statements
 
 Chief Executives Review
 Overview
  Business Performance
     Funding and Capital Strength
    Key Financial Highlights
  Summary Highlights
 >
    
    Personal Financial Services trading profit before tax (managements
preferred profit measure, described in the Business Review  Summary
on page 11) increased by £197m to £1,301m compared to £1,104m in
2007, with strong underlying growth from all business divisions.
 2




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##### Table of Contents



Business Review and Forward-looking Statements
 Chief Executives Review
 >
    
    Personal Financial Services trading income was 12.7% higher,
exceeding the targeted range of between 5% and 10%, and was driven by
a strong performance across all business divisions.
 >
    
    Retail Banking income benefited from a 10% increase in both asset and deposit
growth and better asset new business margins throughout 2008.>
    
    Corporate Banking performance was ahead driven by a continued
prudent lending approach whilst taking advantage of opportunities in the market to
improve margins, such as investing in new people and using Abbeys strong funding and
capital position to compete aggressively against our competitors who are in a weaker
position.>
    
    Private Banking was ahead reflecting growth in all business areas, in
particular Cater Allen and Abbey International which were driven by increased customer
deposits.>
    
    Global Banking & Markets was also ahead reflecting global customer focus and
the strength of its business model.
 >
    
    Personal Financial Services trading expenses growth was in line with inflation before the
impact of Bradford & Bingley plcs savings business, despite significant investment in
customer facing operations and growth businesses such as Corporate Banking and
Private Banking all of which contributed to robust income growth and the fourth consecutive
year of double digit operating jaws. The 2008 targeted trading cost to income ratio, of 45%
(2007: 50%), has been achieved and is now better than the sector average.>
    
    Credit quality remained strong, with the average LTV on new business completions in Q4
reducing to 60% (Q3 08: 62%, Q4 07: 66%) and on stock increasing slightly to 51% (Q3 08: 50%, Q4
07: 46%) reflecting the fall in house prices offset by active management of new business LTVs
and retention activities.
 Looking Ahead to 2009
        Summary
  
 
 3




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##### Table of Contents



Business Review and Forward-looking Statements
 
 Forward-looking Statements
  >
    
    projections or expectations of revenues, costs, profit (or loss), earnings (or loss) per share, dividends, capital
structure or other financial items or ratios;>
    
    statements of plans, objectives or goals of Abbey or its management, including those related to products or services;>
    
    statements of future economic performance; and>
    
    statements of assumptions underlying such statements.
   >
    
    inflation, interest rate, exchange rate, basis spread, market and monetary fluctuations;>
    
    lack of liquidity in funding markets and sources of funding in periods of economic and political crisis;>
    
    the effect of, and changes to, government supervision and regulation of financial services institutions;>
    
    extraordinary governmental actions as a result of current market turmoil, including nationalisation of financial services
institutions;>
    
    the effects of market conditions and extent of economic activity in the UK and other geographical markets;>
    
    the length and severity of current market turmoil and its impact on credit quality, consumer confidence, market
volatility, loan delinquencies and defaults;>
    
    the effects of counterparty defaults on the financial services industry;>
    
    the effects of competition in the geographic and business areas in which Abbey conducts operations;>
    
    changes in consumer spending, saving and borrowing habits in the UK;>
    
    illiquidity and downward price pressure in UK real estate markets;>
    
    the impact of lower than expected investment returns on the funding of private and public sector defined benefit pensions;>
    
    the effects of changes in laws, regulations, taxation or accounting standards or practices, or the effects of the
interpretation of laws by the courts;>
    
    the ability to increase market share and control expenses;>
    
    the timely development and acceptance of new Abbey products and services and the perceived overall value of these
products and services by customers;>
    
    acquisitions and disposals;>
    
    the ability to integrate recently acquired businesses and to realise anticipated saving and operational benefits from
such integration;>
    
    technological changes;>
    
    the possibility of foreign exchange controls, expropriation, nationalisation or confiscation of assets in countries in
which Abbey conducts operations;>
    
    consumer perception as to the continuing availability of credit and price competition; and>
    
    Abbeys success at managing the risks of the foregoing.
   4




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##### Table of Contents



Business and Financial Review
 
 Business Overview
  General
   Summary history
        Corporate purpose and strategy
  Executive responsibility
  >
    
    Retail Banking- offers residential mortgages, savings and banking and other personal financial
products to customers throughout the United Kingdom. This division is headed by António
Horta-Osório. Alison Brittain is responsible for the Retail Distribution channel as well as business
banking, premium banking and e-commerce, while David Bennett is responsible for the Intermediary
channel.>
    
    Global Banking & Markets- provides financial markets sales, trading and risk management services, as
well as manufacturing retail structured products. This division is headed by Jaime Astarloa.
 5




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##### Table of Contents



Business and Financial Review
 Business Overview
 >
    
    Corporate Banking  offers banking services
principally to small and mid-sized UK companies. It also contains operations in run down. This
division is headed by Miguel-Ángel Rodríguez-Sola. From 1
June 2009, and subject to UK Financial Services Authority approval,
this division will be headed by Steve Pateman.>
    
    Private Banking(formerly known as Wealth Management)  offers private banking services,
self-invested personal pension plans, a WRAP service and other specialist banking services. This
division is headed by António Lorenzo.
  >
    
    Retail Products and Marketing responsible for integrating and gaining the
maximum value from Abbeys products, marketing and brand communications to serve Abbeys
customers better. This division is headed by Nathan Bostock. On 25 February 2009, the Company
announced that he would be leaving the Company on 1 June 2009. From 1 June 2009, and subject
to UK Financial Services Authority approval, this division will be headed by Miguel-Ángel
Rodríguez-Sola.>
    
    Human Resources responsible for delivering the human resources strategy and
personnel support. It also includes the learning function. This division was formerly headed
by Nathan Bostock and is now, as of 19 March 2009, headed by Karen Fortunato.>
    
    Manufacturing responsible for all information technology, cost control and
operations activity, including service centres. This division is headed by Juan Olaizola.>
    
    Risk responsible for ensuring that the Board and senior management team of
Abbey are provided with an appropriate risk policy and control framework, and to report any
material risk issues to the Risk Committee and the Board. This division is headed by Juan
Colombás.>
    
    Internal Audit responsible for supervising the compliance, effectiveness and
efficiency of Abbeys internal control systems to manage its risks. This division is headed
by Jorge de la Vega.
  >
    
    Group Infrastructure This unit includes Asset & Liability Management, Group
Capital and Funding and reports to Nathan Bostock. The Asset & Liability Management unit will,
from 1 June 2009 and subject to UK Financial Services Authority approval, be headed by António
Lorenzo and report to the Chief Executive.>
    
    Finance, Strategy, and Planning This unit reports to António Lorenzo.>
    
    Corporate Services This unit includes Legal, Secretariat, Compliance and
Regulatory Risk Management (a new unit created on 19 March 2009) and reports to Karen
Fortunato.>
    
    Service Quality This unit reports to Miguel-Ángel Rodríguez-Sola.>
    
    Communications This unit formerly reported to Karen Fortunato and, with effect
from 19 March 2009, is headed by Matthew Young as a stand-alone unit.>
    
    Santander Universities in the UK This unit formerly reported to Karen Fortunato
and, with effect from 19 March 2009, is headed by Miguel-Ángel Rodríguez-Sola as a stand-alone
unit.
 Competition
Competitive environment, future trends and outlook
    Personal Financial Services (PFS)
  6




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##### Table of Contents



Business and Financial Review
 Business Overview
 Retail Banking
  Residential Mortgages
    Savings
  Banking and Consumer Credit
  cahoot
  General Insurance
  Abbey Business
  Asset Management
 Global Banking & Markets
  7




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##### Table of Contents



Business and Financial Review
 Business Overview
 Corporate  Banking
   Private Banking (formerly known as Wealth Management)
  Abbey International
  James Hay
  Cater Allen
  Abbey Sharedealing
  Group Infrastructure
   Sold Life Businesses
  8




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##### Table of Contents



Business and Financial Review
 
 Business Review  Summary
  Executive Summary
  >
    
    Business Review Summary- this contains an explanation of the basis of Abbeys results and any potential changes to that basis in the future; a summary
Income Statement with commentary; a summary of the nature of adjustments between Abbeys statutory basis of accounting (as described in the Accounting
Policies section on pages 77 to 94) and Abbeys management basis of accounting (known as the trading basis); and a description of key performance
indicators;>
    
    Personal Financial Services- this contains a summary of the results, and commentary thereon, by Income Statement line item on a trading basis for each
segment. Additional information is provided for the Retail Banking segment due to its significance to Abbeys results;>
    
    Sold Life Businesses- this contains a commentary on the results of the life insurance businesses sold in 2006;>
    
    Other Material Items- this contains information about the statutory to trading basis adjustments; and>
    
    Balance Sheet Business Review- this contains an analysis of Abbeys balance sheet, including:
 >
    
    Capital disclosures- this contains an analysis of Abbeys capital needs and availability;>
    
    Off-Balance Sheet disclosures- this contains a summary of Abbeys off-balance
sheet arrangements, their business purpose, and importance to Abbey; and>
    
    Liquidity disclosures- this contains an analysis of Abbeys sources and uses of
liquidity and cash flows.
 Basis of results presentation
  >
    
    Retail Banking;>
    
    Global Banking & Markets;>
    
    Corporate Banking;>
    
    Private Banking;>
    
    Group Infrastructure; and>
    
    Sold Life Businesses.
  Critical Factors Affecting Results
Critical accounting policies and areas of significant management judgement
  Impact of the current credit environment
  Profit on disposal of Group undertakings
  Significant acquisitions and disposals
  Current and future accounting developments under IFRS
  9




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##### Table of Contents



Business and Financial Review
 Business Review  Summary
 Group Summary
 Summarised consolidated statutory income statement and selected ratios
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mNet interest income
    
    
    1,772
    
    
    
    1,499
    
    
    
    1,228Non-interest income
    
    
    1,232
    
    
    
    1,283
    
    
    
    1,242Total operating income
    
    
    3,004
    
    
    
    2,782
    
    
    
    2,470Administrative expenses
    
    
    (1,343
    )
    
    
    (1,369
    )
    
    
    (1,420
    )Depreciation and amortisation
    
    
    (202
    )
    
    
    (205
    )
    
    
    (215
    )Total operating expenses excluding provisions and charges
    
    
    (1,545
    )
    
    
    (1,574
    )
    
    
    (1,635
    )Impairment losses on loans and advances
    
    
    (348
    )
    
    
    (344
    )
    
    
    (344
    )Provisions for other liabilities and charges
    
    
    (17
    )
    
    
    
    
    
    
    (63
    )Total operating provisions and charges
    
    
    (365
    )
    
    
    (344
    )
    
    
    (407
    )Profit on continuing operations before tax
    
    
    1,094
    
    
    
    864
    
    
    
    428Tax on profit on continuing operations
    
    
    (275
    )
    
    
    (179
    )
    
    
    (115
    )Profit for the year from continuing operations
    
    
    819
    
    
    
    685
    
    
    
    313Loss for the year from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (245
    )Profit for the year
    
    
    819
    
    
    
    685
    
    
    
    68Tier 1 capital ratio(1) (%)
    
    
    8.5
    %
    
    
    7.3
    %
    
    
    8.0
    %Core Tier 1 capital ratio(1) (%)
    
    
    6.2
    %
    
    
    5.4
    %
    
    
    5.6
    %Risk weighted assets(2)
    
    
    63,425
    
    
    
    68,562
    
    
    
    62,942
 (1)
    
    From 1 January 2008, the Group has managed its capital requirements on a Basel II basis, as
described in Note 47 to the Consolidated Financial Statements. 2007 and 2006 have been presented on
a Basel I basis.(2)
    
    In accordance with the requirements of the UK Financial Services Authority, this includes 35.6%
of Alliance & Leicester plcs risk weighted assets at 31 December 2008, reflecting Abbeys
ownership of that percentage of Alliance & Leicester plcs ordinary share capital on that date, as
described in Business Overview  Summary History. 2008 compared to 2007
  >
    
    Net interest income of £1,772m compared to £1,499m in 2007 increased by £273m, driven by a combination of asset
growth and improved Commercial Banking spread up 4 basis points. Retail Banking income benefited from strong
asset growth of 10% in challenging market conditions, and Abbeys continued focus on effective margin
management for both mortgages and customer deposits. At the same time, Abbey maintained its focus on high
quality prime residential lending at lower LTV and improved retention at attractive margins. Corporate Banking performance was ahead, driven by continued prudent growth in lending whilst taking advantage
of opportunities in the market to improve margins. Private Banking also delivered an excellent performance
reflecting growth in all business areas, in particular Cater Allen and Abbey International which were driven by
increased customer deposits. Net interest income also benefited from higher earnings within Group
Infrastructure on retained profits and the additional share capital injection of £1bn in October 2008, prior to
its transfer into Alliance & Leicester plc in December 2008.>
    
    Non-interest income of £1,232m compared to £1,283m in 2007 decreased by £51m. The decrease is largely due to
the profit on sale received in 2007 from the part sale of PFS subsidiaries, not repeated in 2008. Despite
difficult market conditions, Retail Banking continued to broaden its cross-selling activity, with increased
commission from credit cards and investments. Growth in these areas was offset by lower mortgage redemption
volumes, lower unsecured lending and continued pressure on current account charges. Corporate Banking increased as new business lending generated more in both fees and cross-selling of Global Banking &
Markets products. Private Banking was slightly ahead reflecting increased fees in James Hay offsetting lower
income in Abbey International due to the one-off property sales in 2007. Global Banking & Markets finished the
year with a strong performance, well ahead of last year, reflecting global customer focus and the strength of
its business model.>
    
    Administrative expenses of £1,343m (2007: £1,369m) decreased by £26m due to continuing cost reduction activity
partially offset by costs relating to the Bradford & Bingley savings business and branch network.>
    
    Depreciation and amortisation of £202m (2007: £205m) was in line with the previous year, as Porterbrook was
only sold at the end of the year.>
    
    Impairment losses on loans and advances were broadly unchanged at £348m (2007: £344m), as credit quality
remained strong, with a continued reduction in the size of the unsecured personal lending book, offset by a
further general deterioration in economic conditions affecting the mortgage portfolio provision.>
    
    Provisions for other liabilities and charges of £17m compared to £nil in 2007, relating to the integration of
the acquired Bradford & Bingley savings business and branch network, partially offset by a release of the
misselling provision.
 10




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Business and Financial Review
 Business Review  Summary
 2007 compared to 2006
  >
    
    Net interest income of £1,499m compared to £1,228m in 2006 increased by £271m. Retail Banking income benefited
from robust asset growth of 8% in challenging market conditions, and Abbeys continued focus on effective
margin management for both mortgages and customer deposits. Overall the Commercial Banking spread improved by
4 basis points. Net interest income also benefited from the full year impact of earnings from proceeds from the
sale of the life insurance businesses in 2006.>
    
    Non-interest income of £1,283m compared to £1,242m in 2006 increased by £41m. The increase related to the
uplift in revenues within Global Banking & Markets despite difficult trading conditions in the second half of
the year restricting transaction flow. In addition, 2007 benefited from the increase in the profit on part sale
of PFS subsidiaries, partially offset by higher losses from hedging and other mark-to-market variances compared
to 2006. Retail banking fee income declined slightly.>
    
    Administrative expenses of £1,369m (2006: £1,420m) decreased by £51m driven by on-going cost reduction activity.>
    
    Depreciation and amortisation of £205m (2006: £215m) decreased by £10m due to lower asset write-downs.>
    
    Impairment losses on loans and advances were unchanged at £344m, with reduced exposure to unsecured lending,
particularly internet-sourced lending, being offset by increases elsewhere reflecting the deterioration in
market conditions. Credit quality overall remained sound.>
    
    Provisions for other liabilities and charges net to £nil compared to £63m in 2006, principally due to the stay
in complaints relating to unauthorised overdraft charges pending a decision on legal proceedings in the High
Court of England and Wales to resolve legal uncertainties concerning the level, fairness and lawfulness of
unauthorised overdraft charges, as described in Note 37 to the Consolidated Financial StatementsLoss for the year from discontinued operations of £245m in 2006 comprised the profit of the life insurance
businesses of £19m and a loss on sale of £264m.
 Adjustments between the statutory basis and the trading basis
    >
    
    Reorganisation and other costs- Comprise implementation costs in
relation to the strategic change cost reduction projects, as well as
certain remediation administration expenses and credit provisions.
Management needs to understand the underlying drivers of the cost
base that will remain after these exercises are complete, and does
not want this view to be clouded by these costs, which are managed
independently.>
    
    Depreciation of operating lease assets- The Porterbrook operating
lease businesses sold in 2008 had been managed as financing
businesses and, therefore, management needed to see the margin earned
on the businesses. Residual value risk was separately managed. As a
result, the depreciation was netted against the related income.>
    
    Profit on part sale of PFS subsidiaries- These profits are excluded
from the results to allow management to understand the underlying
performance of the business. In 2008, the profit on the sale of the
Porterbrook businesses was excluded. In 2007, the profit on the sale
of 49% of James Hay, Cater Allen and Abbey Sharedealing, and small
recoveries on certain other transactions were excluded. In 2006, the
profit on the sale of the Asset Management businesses was similarly
excluded.>
    
    Hedging and certain other mark-to-market variances- The Balance
Sheet and Income Statement are subject to mark-to-market volatility
including that arising from the accounting for elements of
derivatives deemed under IFRS rules to be ineffective as hedges.
Volatility also arises on certain assets previously managed on a fair
value basis, and hence classified as fair value through profit or
loss under IFRS, that are now managed on an accruals basis. Where
appropriate, such volatility is separately identified to enable
management to view the underlying performance of the business.>
    
    Capital and other charges- Principally comprise internal nominal
charges for capital invested in the Groups businesses. Management
implemented this charge to assess if capital is invested effectively.
  11




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##### Table of Contents



Business and Financial Review
 Business Review  Summary
 Key performance indicators
  Key performance indicator
    
    Note
    
    
    2008
    
    
    2007
    
    
    2006PFS trading revenues
    
    
    1
    
    
    £
    2,947
    m
    
    £
    2,615
    m
    
    £
    2,452
    mPFS trading cost:income ratio
    
    
    2
    
    
    
    45
    %
    
    
    50
    %
    
    
    55
    %Profit for the year
    
    
    3
    
    
    £
    819
    m
    
    £
    685
    m
    
    £
    68
    mCommercial Banking spread
    
    
    4
    
    
    
    1.44
    %
    
    
    1.40
    %
    
    
    1.36
    %Total number of employees
    
    
    5
    
    
    
    15,914
    
    
    
    15,236
    
    
    
    16,395Mortgage market share
    
    
    6
    
    
    
    9.9
    %
    
    
    9.3
    %
    
    
    9.4
    %
 1.
    
    PFS trading revenuesPFS trading revenues comprise net interest income and non-interest income of the
Personal Financial Services businesses. Discussion and analysis of this data is set out
in the Business Review  Personal Financial Services on pages 16 and 17.
     Management reviews PFS trading revenues in order to assess the Groups effectiveness in
obtaining new customers and business. Managements target for PFS trading revenues is growth
of between 5 and 10% per annum from 2006 to 2008. PFS trading revenue growth in 2008 was
12.7% (2007: 6.6%).
 2.
    
    PFS trading cost:income ratioThe PFS trading cost:income ratio is defined as trading expenses divided by trading income of
the Personal Financial Services businesses. Discussion and analysis of trading income and
expenses is set out in the Business Review  Personal Financial Services on pages 16 to 19.
Further information about the calculation of the PFS trading cost:income ratio is contained in
Selected Financial Data on page 139.
      Management reviews the PFS trading cost:income ratio in order to measure the operating
efficiency of the Group. Managements target for the PFS trading cost:income ratio, set in
2005, was to achieve 45% by 2008.
 3.
    
    Profit for the yearProfit for the year is the statutory consolidated profit after tax for the year. Discussion
and analysis of this data is set out in the Group Summary in this Business Review  Summary
section on pages 10 and 11.
     Management reviews the profit for the year in order to monitor the effectiveness of the
Groups strategy and decisions to maximise the value of the business, and increase the
strength of its capital base and its capacity to pay dividends to its shareholder Banco
Santander, S.A.. Managements target for the profit for the year is to achieve steady growth
over the previous year.
 4.
    
    Commercial Banking spreadCommercial Banking spread is defined as interest received (mortgages, unsecured personal
loans, corporate loans and overdraft interest), less interest payable (retail and corporate
deposits and in-credit bank accounts) divided by interest-earning customer loans. Discussion
and analysis of this data is set out in the Business Review  Personal Financial Services on
pages 13 to 19.
      Management reviews the Commercial Banking spread in order to assess the economic
sustainability of its commercial banking products and operations. Managements target for the
Commercial Banking spread is to ensure that it is appropriate for the current market
conditions and profit targets.
 5.
    
    Total number of employeesTotal number of employees is measured at the year-end and calculated on a full-time equivalent
basis. 2008 data includes 1,556 employees who transferred to Abbey National plc in September
2008 as part of the acquisition of Bradford & Bingley plcs retail savings business and branch
network. 2007 and 2006 data do not include such employees. As part of the planning process,
headcount targets are set for each division and reviewed on a monthly basis. Further
information about employees on a segmental basis is contained in Note 1 to the Consolidated
Financial Statements.
      Management reviews the total number of employees in order to support the continuing
overall control of the Groups cost base. Managements targets for the total number of
employees are to ensure that staffing levels are optimal for the nature and size of the
Groups business.
 6.
    
    Mortgage market shareMortgage market share represents the value of the Groups mortgage asset as a percentage of
the total value of mortgages in the UK market, and is measured at the year-end. Discussion and
analysis of this data is set out in the Business Review  Personal Financial Services on pages
14 and 15.
      Management reviews mortgage market share in order to assess the Groups effectiveness in
obtaining new customers. Managements target for mortgage market share is to maintain the
Groups historical market share of approximately 10%, subject to earning an appropriate
margin.




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##### Table of Contents



Business and Financial Review
 
 Business Review  Personal Financial Services
  Personal Financial Services profit before tax by segment
 GlobalRetail
    
    
    Banking &
    
    
    Corporate
    
    
    Private
    
    
    GroupBanking
    
    
    Markets
    
    
    Banking
    
    
    Banking
    
    
    Infrastructure
    
    
    Total31 December 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income/(expense)
    
    
    1,827
    
    
    
    
    
    
    
    (13
    )
    
    
    85
    
    
    
    (127
    )
    
    
    1,772Non-interest income
    
    
    622
    
    
    
    326
    
    
    
    133
    
    
    
    35
    
    
    
    59
    
    
    
    1,175Total trading income
    
    
    2,449
    
    
    
    326
    
    
    
    120
    
    
    
    120
    
    
    
    (68
    )
    
    
    2,947Total trading expenses
    
    
    (988
    )
    
    
    (107
    )
    
    
    (45
    )
    
    
    (59
    )
    
    
    (141
    )
    
    
    (1,340
    )Impairment losses on loans and advances
    
    
    (309
    )
    
    
    
    
    
    
    6
    
    
    
    (3
    )
    
    
    
    
    
    
    (306
    )Trading profit/(loss) before tax
    
    
    1,152
    
    
    
    219
    
    
    
    81
    
    
    
    58
    
    
    
    (209
    )
    
    
    1,301Adjust for:- Reorganisation and other costs
    
    
    (121
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42
    )
    
    
    (163
    )- Profit on part sale of PFS subsidiaries
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    40- Hedging and certain other mark-to-market variances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    (84
    )- Capital and other charges
    
    
    (103
    )
    
    
    
    
    
    
    (14
    )
    
    
    16
    
    
    
    101
    
    
    
    Profit/(loss) from continuing operations before tax
    
    
    928
    
    
    
    219
    
    
    
    107
    
    
    
    74
    
    
    
    (234
    )
    
    
    1,094
 GlobalRetail
    
    
    Banking &
    
    
    Corporate
    
    
    Private
    
    
    GroupBanking
    
    
    Markets
    
    
    Banking
    
    
    Banking
    
    
    Infrastructure
    
    
    Total31 December 2007
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income/(expense)
    
    
    1,623
    
    
    
    
    
    
    
    (31
    )
    
    
    70
    
    
    
    (163
    )
    
    
    1,499Non-interest income
    
    
    635
    
    
    
    260
    
    
    
    132
    
    
    
    34
    
    
    
    55
    
    
    
    1,116Total trading income
    
    
    2,258
    
    
    
    260
    
    
    
    101
    
    
    
    104
    
    
    
    (108
    )
    
    
    2,615Total trading expenses
    
    
    (996
    )
    
    
    (107
    )
    
    
    (30
    )
    
    
    (61
    )
    
    
    (105
    )
    
    
    (1,299
    )Impairment losses on loans and advances
    
    
    (239
    )
    
    
    
    
    
    
    29
    
    
    
    (2
    )
    
    
    
    
    
    
    (212
    )Trading profit/(loss) before tax
    
    
    1,023
    
    
    
    153
    
    
    
    100
    
    
    
    41
    
    
    
    (213
    )
    
    
    1,104Adjust for:- Reorganisation and other costs
    
    
    (139
    )
    
    
    (6
    )
    
    
    
    
    
    
    (1
    )
    
    
    (132
    )
    
    
    (278
    )- Profit on part sale of PFS subsidiaries
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    105
    
    
    
    110- Hedging and certain other mark-to-market variances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    (72
    )- Capital and other charges
    
    
    (89
    )
    
    
    
    
    
    
    (11
    )
    
    
    19
    
    
    
    81
    
    
    
    Profit/(loss) from continuing operations before tax
    
    
    795
    
    
    
    147
    
    
    
    94
    
    
    
    59
    
    
    
    (231
    )
    
    
    864
 GlobalRetail
    
    
    Banking &
    
    
    Corporate
    
    
    Private
    
    
    GroupBanking
    
    
    Markets
    
    
    Banking
    
    
    Banking
    
    
    Infrastructure
    
    
    Total31 December 2006
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income/(expense)
    
    
    1,466
    
    
    
    
    
    
    
    (46
    )
    
    
    62
    
    
    
    (146
    )
    
    
    1,336Non-interest income
    
    
    645
    
    
    
    240
    
    
    
    125
    
    
    
    32
    
    
    
    74
    
    
    
    1,116Total trading income
    
    
    2,111
    
    
    
    240
    
    
    
    79
    
    
    
    94
    
    
    
    (72
    )
    
    
    2,452Total trading expenses
    
    
    (1,005
    )
    
    
    (93
    )
    
    
    (41
    )
    
    
    (58
    )
    
    
    (152
    )
    
    
    (1,349
    )Impairment losses on loans and advances
    
    
    (273
    )
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    (5
    )
    
    
    (251
    )Provisions for other liabilities and charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Trading profit/(loss) before tax
    
    
    833
    
    
    
    147
    
    
    
    65
    
    
    
    34
    
    
    
    (229
    )
    
    
    850Adjust for:- Reorganisation and other costs
    
    
    (133
    )
    
    
    (9
    )
    
    
    
    
    
    
    (5
    )
    
    
    (151
    )
    
    
    (298
    )- Profit on part sale of PFS subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    41- Hedging and certain other mark-to-market variances
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    (45
    )- Capital and other charges
    
    
    (44
    )
    
    
    
    
    
    
    (4
    )
    
    
    15
    
    
    
    (87
    )
    
    
    (120
    )Profit/(loss) from continuing operations before tax
    
    
    648
    
    
    
    138
    
    
    
    61
    
    
    
    44
    
    
    
    (463
    )
    
    
    428
 2008 compared to 2007
 >
    
    Personal Financial Services trading profit before tax of
£1,301m increased by £197m on the previous year (2007:
£1,104m). Trading income was 12.7% higher driven by a strong
performance across all four business divisions. This was
balanced against controlled costs, up 3.2%, as we continued to
invest in our Corporate Banking and Private
Banking businesses, and additional costs relating to the
Bradford & Bingley branch and savings operations acquired in
September 2008. As a result, our trading cost:income ratio
was further reduced to 45%, and is now better than the
expected sector average.




---



##### Table of Contents



Business and Financial Review
 Business Review  Personal Financial Services
 >
    
    Retail Banking trading profit before tax increased by £129m to
£1,152m (2007: £1,023m) which was driven by an 8.5% increase
in trading income and lower expenses partly offset by higher
credit provisions. Trading income benefited from a 10% growth
in both assets and deposits and better mortgage new business
margins throughout 2008. At the same time, we maintained our
focus on high quality prime residential lending at lower LTV
and improved retention at attractive margins. Trading
provisions have increased largely reflecting an increase in
mortgage arrears, driven by the change in economic
conditions. The level of secured coverage remains strong at
25% and is expected to be well ahead of UK peers for 2008, and
appropriately reflects the current economic conditions.>
    
    Global Banking & Markets trading profit before tax increased
by £66m to £219m (2007: £153m) reflecting strong performance
in both Rates and Equity business, due to increased
transactional flow arising from close co-operation with other
parts of Abbey and the beneficial trading environment
available from diverging spreads in an illiquid market.>
    
    Corporate Banking trading profit before tax
decreased by £19m to £81m (2007: £100m) reflecting lower provision releases from positions in rundown, partially offset by the net higher trading income less expenses largely driven by investment in growing the
business.>
    
    Private Banking trading profit before tax increased by £17m to
£58m (2007: £41m) reflecting growth in all business areas, in
particular Cater Allen and Abbey International which were
driven by increased customer deposits attracted by competitive
rates.>
    
    Group Infrastructure trading loss before tax decreased by £4m
to £209m (2007: £213m) reflecting higher earnings on retained
profits and earnings on the additional share capital injection
of £1bn in October 2008, prior to its transfer into Alliance &
Leicester plc in December 2008.
 2007 compared to 2006
 >
    
    Personal Financial Services trading profit before tax of
£1,104m increased by £254m on the previous year (2006: £850m).
Trading income was 6.6% higher and within the targeted range.
There was a further reduction in trading expenses of 3.8% in
2007 with headcount 1,159 full time equivalents lower than 31
December 2006. Trading profit before tax benefited from
positive trading income and cost trends and lower credit
provisions.>
    
    Retail Banking trading profit before tax increased by £190m to
£1,023m (2006: £833m) driven by a 7% increase in trading
income and lower expenses and credit provisions. Trading
income benefited from robust asset growth of 8% in challenging
market conditions, and Abbeys continued focus on effective
margin management for both mortgages and customer deposits.
Trading provisions have decreased due to the lower unsecured
asset and are partially offset by a slight increase in
mortgage provisions from historic low levels.>
    
    Global Banking & Markets trading profit before tax increased
by £6m to £153m (2006: £147m). Trading income has increased
slightly with profits from the closeout of customer trades
offsetting the effects of difficult market conditions in the
second half of the year.>
    
    Corporate Banking trading profit before tax
increased by £35m to £100m (2006: £65m) reflecting lower
trading costs from the run down of asset financing operations
and a reduced net interest charge due to lower Porterbrook
project and maintenance funding costs. In addition, new
Corporate Banking business streams contributed
positively.>
    
    Private Banking trading profit before tax increased by £7m to
£41m (2006: £34m) reflecting higher trading income and broadly
stable costs. Trading income has improved as a result of
higher deposits in Cater Allen and improved margins in both
Cater Allen and Abbey International.>
    
    Group Infrastructure trading loss before tax decreased by £16m
to £213m (2006: £229m) reflecting a small decrease in net
interest income due to base rate changes more than offset by a
reduction in unallocated central costs.
 Personal Financial Services business flows
  2008

        
    2007
    

    
    2006Mortgages:Gross mortgage lending in the year
    
        £31.8
    bn
    
        £35.6
    bn
    
        £32.6
    bnCapital repayments in the year
    
        £20.7
    bn
    
        £26.9
    bn
    
        £24.8
    bnNet mortgage lending in the year
    
        £11.1
    bn
    
        £8.8
    bn
    
        £7.8
    bnMortgage stock balance:
    
        £121.6
    bn
    
        £110.5
    bn

    
        £101.7
    bn- Abbey retail
    
        £115.6
    bn
    
        £105.0
    bn

    
        £96.7
    bn- Housing Association(1)
    
        £6.0
    bn
    
        £5.5
    bn

    
        £5.0
    bnMarket share  gross mortgage lending(2)
    
    
    12.4
    %
    
    
    9.8
    %
    
    
    9.4
    %Market share  capital repayments(2)
    
    
    9.5
    %
    
    
    10.5
    %
    
    
    10.5
    %Market share  net mortgage lending(2)
    
    
    28.9
    %
    
    
    8.1
    %
    
    
    7.1
    %Market share  mortgage stock(2)
    
    
    9.9
    %
    
    
    9.3
    %
    
    
    9.4
    %Retail deposits:Total net deposit flows(3)
    
        £5.6
    bn
    
        £3.2
    bn

    
        £1.1
    bnDeposit stock(4)
    
        £94.4
    bn
    

        £67.4
    bn
    

        £63.8
    bnInvestment and pensions annual premium income
    
    £
    2,247
    m
    
    £
    1,669
    m
    
    £
    1,224
    m




---



##### Table of Contents



Business and Financial Review
 Business Review  Personal Financial Services
 2008
    
    
    2007
    
    
    2006Banking:Bank account openings (000s)- Abbey retail
    
    
    548
    
    
    
    400
    
    
    
    425- Other
    
    
    24
    
    
    
    30
    
    
    
    28572
    
    
    
    430
    
    
    
    453Bank account liability balance:- Abbey retail
    
        £5.5
    bn
    
        £5.5
    bn
    
        £5.3
    bn- Other
    
        £4.7
    bn
    
        £4.8
    bn

    
        £4.5
    bn£10.2
    bn
    
        £10.3
    bn

    
        £9.8
    bnGross unsecured personal lending in the year:- Abbey retail
    
        £0.8
    bn
    
        £0.9
    bn

    
        £1.5
    bn- Other, including cahoot
    
        £0.1
    bn
    
        £0.1
    bn

    
        £0.8
    bn£0.9
    bn
    
        £1.0
    bn

    
        £2.3
    bnUnsecured lending asset balance(5):- Abbey retail
    
        £2.3
    bn

    
        £2.5
    bn

    
        £2.7
    bn- Other, including cahoot
    
        £0.5
    bn

    
        £0.8
    bn

    
        £1.4
    bn£2.8
    bn

    
        £3.3
    bn

    
        £4.1
    bnCredit card sales (000s)
    
    
    395
    
    
    
    261
    
    
    
    112
 (1)
    
    Housing Association mortgages are classified within the Corporate Banking
segment. This excludes contingent liabilities and commitments. See Note 37 to the
Consolidated Financial Statements.(2)
    
    Market shares are estimated internally, based on information from the Bank of England and The
Council of Mortgage Lenders (CML).(3)
    
    Includes Bradford & Bingley savings business net deposit flows in Q4.(4)
    
    Includes Bradford & Bingley deposits at acquisition and subsequent net inflows. 2007 and
2006 have been amended to include retail structured product flows.(5)
    
    Comprises unsecured personal loans, credit cards and overdrafts. 2008 compared to 2007
 Mortgages
  Retail Deposits and Investments
   Banking
  Unsecured Personal Lending
  Credit Card Sales




---



##### Table of Contents



Business and Financial Review
 Business Review  Personal Financial Services
 2007 compared to 2006
Mortgages
  Retail Deposits and Investments
   Protection
  Banking
  Unsecured Personal Lending
  Credit Card Sales
  Personal Financial Services trading net interest income by segment
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mRetail Banking
    
    
    1,827
    
    
    
    1,623
    
    
    
    1,466Corporate Banking
    
    
    (13
    )
    
    
    (31
    )
    
    
    (46
    )Private Banking
    
    
    85
    
    
    
    70
    
    
    
    62Group Infrastructure
    
    
    (127
    )
    
    
    (163
    )
    
    
    (146
    )PFS trading net interest income
    
    
    1,772
    
    
    
    1,499
    
    
    
    1,336Adjust for:- Capital and other charges
    
    
    
    
    
    
    
    
    
    
    (108
    )PFS net interest income
    
    
    1,772
    
    
    
    1,499
    
    
    
    1,228
 2008 compared to 2007




---



##### Table of Contents



Business and Financial Review
 Business Review  Personal Financial Services
 2007 compared to 2006
     Personal Financial Services trading non-interest income by segment
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mRetail Banking
    
    
    622
    
    
    
    635
    
    
    
    645Global Banking & Markets
    
    
    326
    
    
    
    260
    
    
    
    240Corporate Banking
    
    
    133
    
    
    
    132
    
    
    
    125Private Banking
    
    
    35
    
    
    
    34
    
    
    
    32Group Infrastructure
    
    
    59
    
    
    
    55
    
    
    
    74PFS trading non-interest income
    
    
    1,175
    
    
    
    1,116
    
    
    
    1,116Adjust for:- Reorganisation and other costs
    
    
    (16
    )
    
    
    
    
    
    
    - Depreciation of operating lease assets
    
    
    117
    
    
    
    129
    
    
    
    130- Profit on part sale of PFS subsidiaries
    
    
    40
    
    
    
    110
    
    
    
    41- Hedging and certain other mark-to-market variances
    
    
    (84
    )
    
    
    (72
    )
    
    
    (45
    )PFS non-interest income
    
    
    1,232
    
    
    
    1,283
    
    
    
    1,242
 2008 compared to 2007
      2007 compared to 2006




---



##### Table of Contents



Business and Financial Review
 Business Review  Personal Financial Services
 Personal Financial Services total trading expenses by segment
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mRetail Banking
    
    
    988
    
    
    
    996
    
    
    
    1,005Global Banking & Markets
    
    
    107
    
    
    
    107
    
    
    
    93Corporate Banking
    
    
    45
    
    
    
    30
    
    
    
    41Private Banking
    
    
    59
    
    
    
    61
    
    
    
    58Group Infrastructure
    
    
    141
    
    
    
    105
    
    
    
    152PFS total trading expenses
    
    
    1,340
    
    
    
    1,299
    
    
    
    1,349Adjust for:- Reorganisation and other costs
    
    
    88
    
    
    
    146
    
    
    
    144- Depreciation of operating lease assets
    
    
    117
    
    
    
    129
    
    
    
    130-Capital and other charges
    
    
    
    
    
    
    
    
    
    
    12PFS expenses
    
    
    1,545
    
    
    
    1,574
    
    
    
    1,635
 2008 compared to 2007
       2007 compared to 2006
       Personal Financial Services trading impairment losses on loans and advances by segment
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mRetail Banking
    
    
    309
    
    
    
    239
    
    
    
    273Corporate Banking
    
    
    (6
    )
    
    
    (29
    )
    
    
    (27
    )Private Banking
    
    
    3
    
    
    
    2
    
    
    
    Group Infrastructure
    
    
    
    
    
    
    
    
    
    
    5PFS trading impairment losses on loans and advances
    
    
    306
    
    
    
    212
    
    
    
    251Adjust for:- Reorganisation and other costs
    
    
    42
    
    
    
    132
    
    
    
    93PFS impairment losses on loans and advances
    
    
    348
    
    
    
    344
    
    
    
    344
 2008 compared to 2007




---



##### Table of Contents



Business and Financial Review
 Business Review  Personal Financial Services
  2007 compared to 2006
   Personal Financial Services non-performing loans
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mTotal non-performing loans (NPLs)
    
    
    1,505
    
    
    
    892
    
    
    
    826Total loans and advances to customers (excluding trading assets)
    
    
    136,352
    
    
    
    118,399
    
    
    
    109,035Total provisions (on a statutory basis)
    
    
    642
    
    
    
    551
    
    
    
    536NPLs as a % of loans and advances
    
    
    1.10
    %
    
    
    0.75
    %
    
    
    0.76
    %Provisions as a % of NPLs
    
    
    42.66
    %
    
    
    61.77
    %
    
    
    64.89
    %
   Personal Financial Services trading provisions for other liabilities and charges by segment
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mPrivate Banking
    
    
    
    
    
    
    
    
    
    
    2PFS trading provisions for other liabilities and charges
    
    
    
    
    
    
    
    
    
    
    2Adjust for:- Reorganisation and other costs
    
    
    (17
    )
    
    
    
    
    
    
    61PFS provisions for other liabilities and charges
    
    
    (17
    )
    
    
    
    
    
    
    63
  
 Business Review  Sold Life Businesses
   Trading income and operating expenses
  Impairment losses on intangible assets
  Loss on sale of discontinued operations




---



##### Table of Contents



Business and Financial Review
 
 Other Material Items
 Adjustments between the statutory basis and the trading basis
    Reorganisation and other costs
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mCost reduction programme
    
    
    (100
    )
    
    
    (109
    )
    
    
    (152
    )Credit provisions
    
    
    (42
    )
    
    
    (132
    )
    
    
    (93
    )Misselling remediation administration costs
    
    
    (21
    )
    
    
    (37
    )
    
    
    (61
    )(163
    )
    
    
    (278
    )
    
    
    (306
    )
  2008 compared to 2007
      2007 compared to 2006




---



##### Table of Contents



Business and Financial Review
 Other Material Items
 Profit on part sale of PFS subsidiaries
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £m40
    
    
    
    110
    
    
    
    41
  Hedging and certain other mark-to-market variances
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £m(84
    )
    
    
    (72
    )
    
    
    (45
    )
  2008 compared to 2007
  2007 compared to 2006
  Capital and other charges
  Legal proceedings
  Material contracts
    Audit fees




---



##### Table of Contents



Business and Financial Review
 
 Balance Sheet Business Review
  Securities
  2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mTrading portfolioDebt securities:UK government
    
    
    191
    
    
    
    1,168
    
    
    
    48US treasury and other US government agencies and corporations
    
    
    574
    
    
    
    
    
    
    
    13Other OECD governments
    
    
    2,374
    
    
    
    2,554
    
    
    
    2,402Bank and building society certificates of deposit
    
    
    8,032
    
    
    
    9,679
    
    
    
    10,839Other issuers:Floating rate notes
    
    
    5,101
    
    
    
    2,805
    
    
    
    298Mortgage-backed securities
    
    
    
    
    
    
    2
    
    
    
    75Other asset-backed securities
    
    
    
    
    
    
    2,368
    
    
    
    1,584Other
    
    
    529
    
    
    
    10,255
    
    
    
    14,551Ordinary shares and similar securities
    
    
    708
    
    
    
    1,494
    
    
    
    2,75417,509
    
    
    
    30,325
    
    
    
    32,564Available for sale securitiesOther issuers:UK government
    
    
    739
    
    
    
    
    
    
    
    Other
    
    
    231
    
    
    
    8
    
    
    
    8Ordinary shares and similar securities
    
    
    35
    
    
    
    32
    
    
    
    151,005
    
    
    
    40
    
    
    
    23Fair value through profit and lossDebt securities:Bank and building society certificates of deposit
    
    
    
    
    
    
    15
    
    
    
    15Other issuers:Mortgage-backed securities
    
    
    4,362
    
    
    
    4,093
    
    
    
    3,006Other asset-backed securities
    
    
    
    
    
    
    1,460
    
    
    
    Other
    
    
    265
    
    
    
    514
    
    
    
    3024,627
    
    
    
    6,082
    
    
    
    3,323Total
    
    
    23,141
    
    
    
    36,447
    
    
    
    35,910
 UK government securities
  US treasury and other US government agencies and corporations
  Other OECD governments
  Bank and building society certificates of deposit
  Floating rate notes
  Mortgage-backed securities
  Other asset-backed securities
  22




---



##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 Other securities
   In more than three
    
    
    In more than oneIn not more than
    
    
    months but not more
    
    
    year but not more
    
    
    In more than fiveOn demand
    
    
    three months
    
    
    than one year
    
    
    than five years
    
    
    years
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mUK government
    
    
    
    
    
    
    
    
    
    
    739
    
    
    
    
    
    
    
    
    
    
    
    739Other
    
    
    
    
    
    
    
    
    
    
    231
    
    
    
    
    
    
    
    
    
    
    
    231Weighted average
yield for the year
%
    
    
    
    
    
    
    
    
    
    
    5.19
    %
    
    
    
    
    
    
    
    
    
    
    5.19
    %
 Significant exposures
  £mHipototta No.3 plc
    
    
    1,387Barclays Bank plc
    
    
    1,214Hipototta No.2 plc
    
    
    1,047UK Government
    
    
    930Lloyds Banking Group plc
    
    
    750Government of Germany
    
    
    749Royal Bank of Scotland Group plc
    
    
    661US Government
    
    
    574Government of Austria
    
    
    567Kingdom of Spain
    
    
    504Credit Agricole S.A.
    
    
    473
 Loans and advances to banks
  2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mUK
    
    
    28,640
    
    
    
    12,066
    
    
    
    11,943
    
    
    
    8,060
    
    
    
    11,081Non-UK
    
    
    3,106
    
    
    
    222
    
    
    
    93
    
    
    
    1,036
    
    
    
    67031,746
    
    
    
    12,288
    
    
    
    12,036
    
    
    
    9,096
    
    
    
    11,751
   In more than three
    
    
    In more than oneIn not more than
    
    
    months but not more
    
    
    year but not more
    
    
    In more than fiveOn demand
    
    
    three months
    
    
    than one year
    
    
    than five years
    
    
    years
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mUK
    
    
    5,793
    
    
    
    10,778
    
    
    
    10,663
    
    
    
    61
    
    
    
    1,345
    
    
    
    28,640Non-UK
    
    
    2,943
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    3,1068,736
    
    
    
    10,866
    
    
    
    10,663
    
    
    
    61
    
    
    
    1,420
    
    
    
    31,746
  Fixed rate
    
    
    Variable rate
    
    
    Total£m
    
    
    £m
    
    
    £mInterest-bearing loans and advances to banks(1):UK
    
    
    20,500
    
    
    
    7,381
    
    
    
    27,881Non-UK
    
    
    1,971
    
    
    
    1,135
    
    
    
    3,10622,471
    
    
    
    8,516
    
    
    
    30,987
 (1)
    
    Excludes non interest-bearing accounts 23




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##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 Loans and advances to customers
  2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mUKAdvances secured on residential properties
    
    
    122,162
    
    
    
    110,857
    
    
    
    102,096
    
    
    
    94,330
    
    
    
    91,164Purchase and resale agreements
    
    
    433
    
    
    
    3,711
    
    
    
    5,427
    
    
    
    4,789
    
    
    
    4,520Other secured advances
    
    
    4,150
    
    
    
    2,960
    
    
    
    2,305
    
    
    
    1,882
    
    
    
    1,793Corporate advances
    
    
    6,773
    
    
    
    1,302
    
    
    
    666
    
    
    
    334
    
    
    
    1,030Unsecured personal advances
    
    
    3,246
    
    
    
    3,263
    
    
    
    4,104
    
    
    
    3,845
    
    
    
    3,517Finance lease debtors
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    3
    
    
    
    1,108136,764
    
    
    
    122,093
    
    
    
    114,599
    
    
    
    105,183
    
    
    
    103,132Non-UKAdvances secured on residential properties
    
    
    12
    
    
    
    13
    
    
    
    19
    
    
    
    26
    
    
    
    14Purchase and resale agreements
    
    
    
    
    
    
    13,544
    
    
    
    14,375
    
    
    
    13,152
    
    
    
    6,737Other secured advances
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Corporate advances
    
    
    103
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unsecured personal advances
    
    
    2
    
    
    
    2
    
    
    
    35
    
    
    
    31
    
    
    
    120
    
    
    
    13,561
    
    
    
    14,429
    
    
    
    13,209
    
    
    
    6,751Total
    
    
    136,884
    
    
    
    135,654
    
    
    
    129,028
    
    
    
    118,392
    
    
    
    109,883
    In not more
    
    
    In more than three
    
    
    In more than one
    
    
    In moreOn
    
    
    than three
    
    
    months but not
    
    
    year but not more
    
    
    than fivedemand
    
    
    months
    
    
    more than one year
    
    
    than five years
    
    
    years
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mUKAdvances secured on residential properties
    
    
    11
    
    
    
    3,448
    
    
    
    2,181
    
    
    
    11,895
    
    
    
    104,627
    
    
    
    122,162Purchase and resale agreements
    
    
    433
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    433Other secured advances
    
    
    1
    
    
    
    489
    
    
    
    65
    
    
    
    399
    
    
    
    3,196
    
    
    
    4,150Corporate advances
    
    
    
    
    
    
    4,494
    
    
    
    267
    
    
    
    1,782
    
    
    
    230
    
    
    
    6,773Unsecured personal advances
    
    
    524
    
    
    
    278
    
    
    
    480
    
    
    
    1,332
    
    
    
    632
    
    
    
    3,246Total UK
    
    
    969
    
    
    
    8,709
    
    
    
    2,993
    
    
    
    15,408
    
    
    
    108,685
    
    
    
    136,764Non-UKAdvances secured on residential properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    11
    
    
    
    12Other secured advances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Corporate advances
    
    
    99
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103Unsecured personal advances
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Total non-UK
    
    
    101
    
    
    
    4
    
    
    
    
    
    
    
    1
    
    
    
    14
    
    
    
    120Total
    
    
    1,070
    
    
    
    8,713
    
    
    
    2,993
    
    
    
    15,409
    
    
    
    108,699
    
    
    
    136,884
 24




---



##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
  Fixed rate
    
    
    Variable rate
    
    
    Total£m
    
    
    £m
    
    
    £mUK
    
    
    69,245
    
    
    
    67,519
    
    
    
    136,764Non-UK
    
    
    102
    
    
    
    18
    
    
    
    12069,347
    
    
    
    67,537
    
    
    
    136,884
  Provisions on loans and advances to customers
  Potential problem loans and advances
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m6 months to 12 months in arrears
    
    
    336
    
    
    
    163
    
    
    
    155
    
    
    
    172
    
    
    
    10512 months or more in arrears
    
    
    30
    
    
    
    30
    
    
    
    27
    
    
    
    26
    
    
    
    15Properties in possession
    
    
    113
    
    
    
    64
    
    
    
    42
    
    
    
    44
    
    
    
    18
 Potential credit risk elements in loans and advances
  Country risk exposure
  Cross border outstandings
  Cross border outstandings exceeding 1% of total assets
  Commercial,Banks and other
    
    
    Governments and
    
    
    industrial andfinancial
    
    
    official
    
    
    other privateAs % of total assets
    
    
    Total
    
    
    institutions
    
    
    institutions
    
    
    sector entities%
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 31 December 2007:United States
    
    
    1.19
    
    
    
    2,369
    
    
    
    2,369
    
    
    
    
    
    
    
    At 31 December 2006:United States
    
    
    1.25
    
    
    
    2,395
    
    
    
    2,395
    
    
    
    
    
    
    
    
 25




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##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 Cross border outstandings between 0.75% and 1% of total assets
  Tangible fixed assets
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mCapital expenditure incurred during the year
    
    
    241
    
    
    
    407
    
    
    
    230
     Deposits
  Average: year ended 31 December2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mDeposits by banksUK
    
    
    29,125
    
    
    
    34,120
    
    
    
    29,713Non-UK
    
    
    2,403
    
    
    
    2,454
    
    
    
    1,98131,528
    
    
    
    36,574
    
    
    
    31,694Deposits by customers (all interest bearing)UK
    
    
    76,198
    
    
    
    64,676
    
    
    
    62,452Non-UK
    
    
    3,367
    
    
    
    3,401
    
    
    
    4,22679,565
    
    
    
    68,077
    
    
    
    66,678
 Deposits by customers
  Average: year ended 31 December2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mUKRetail demand deposits
    
    
    50,298
    
    
    
    56,563
    
    
    
    54,529Retail time deposits
    
    
    23,095
    
    
    
    6,033
    
    
    
    6,089Wholesale deposits
    
    
    2,805
    
    
    
    2,080
    
    
    
    1,83476,198
    
    
    
    64,676
    
    
    
    62,452Non-UKRetail demand deposits
    
    
    1,482
    
    
    
    1,811
    
    
    
    1,490Retail time deposits
    
    
    1,885
    
    
    
    1,532
    
    
    
    1,144Wholesale deposits
    
    
    
    
    
    
    58
    
    
    
    1,5923,367
    
    
    
    3,401
    
    
    
    4,22679,565
    
    
    
    68,077
    
    
    
    66,678
  26




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##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 Demand deposits
  Time deposits
  Wholesale deposits
  Short-term borrowings
  Deposits by banks (1)
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mYear-end balance (2)
    
    
    37,678
    
    
    
    27,555
    
    
    
    36,755Average balance(3)
    
    
    31,528
    
    
    
    36,574
    
    
    
    31,694Maximum balance
    
    
    37,678
    
    
    
    48,278
    
    
    
    37,485
 (1)
    
    Abbey policy is to mark-to-market the majority of its deposits by banks balances including
interest. Mark-to-market movements are recorded in net trading and other income rather than
net interest income. As a result, it has not been possible to calculate average or year-end
interest rates.(2)
    
    The year-end deposits by banks balance includes non-interest bearing items in the course of
transmission of £922m (2007: £786m, 2006: £363m).(3)
    
    Average balances are based upon monthly data.
  Commercial paper
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mYear-end balance
    
    
    4,862
    
    
    
    7,283
    
    
    
    6,705Year-end interest rate(1)
    
    
    1.66
    %
    
    
    
    
    
    
    Average balance(2)
    
    
    4,482
    
    
    
    6,610
    
    
    
    6,344Average interest rate(1)(2)
    
    
    3.3
    %
    
    
    
    
    
    
    Maximum balance
    
    
    5,797
    
    
    
    8,784
    
    
    
    7,308
 (1)
    
    Prior to 2008, the majority of commercial paper balances including interest were
marked-to-market rather than accounted for or an accruals basis. Mark-to-market movements were recorded in net trading and other income
rather than net interest income. As a result, it was not possible to calculate average or a
year-end interest rates for 2007 or 2006.(2)
    
    Average balances are based upon monthly data.
  Negotiable certificates of deposit
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mYear-end balance
    
    
    9,638
    
    
    
    11,326
    
    
    
    10,832Year-end interest rate(1)
    
    
    4.17
    %
    
    
    
    
    
    
    Average balance (2)
    
    
    12,729
    
    
    
    13,037
    
    
    
    7,644Average interest rate(1)(2)
    
    
    4.9
    %
    
    
    
    
    
    
    Maximum balance
    
    
    15,807
    
    
    
    14,821
    
    
    
    10,832
 (1)
    
    Prior to 2008, the majority of negotiable certificates of deposit balances including interest
were marked-to-market rather than accounted for or an accruals basis. Mark-to-market movements were recorded in net trading and other income
rather than net interest income. As a result, it was not possible to calculate average or
year-end interest rates for 2007 or 2006.(2)
    
    Average balances are based upon monthly data.
 Certificates of deposit and certain time deposits
  27




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##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
  In more than three
    
    
    In more than sixNot more than
    
    
    months but not more
    
    
    months but not more
    
    
    In more thanthree months
    
    
    than six months
    
    
    than one year
    
    
    one year
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCertificates of deposit:UK
    
    
    3,536
    
    
    
    1,053
    
    
    
    62
    
    
    
    23
    
    
    
    4,674Non-UK
    
    
    3,241
    
    
    
    855
    
    
    
    833
    
    
    
    35
    
    
    
    4,964Wholesale time deposits:UK
    
    
    3,275
    
    
    
    455
    
    
    
    496
    
    
    
    652
    
    
    
    4,87810,052
    
    
    
    2,363
    
    
    
    1,391
    
    
    
    710
    
    
    
    14,516
  Capital management and resources
 Capital management and capital allocation
  Capital and risk management disclosures required by Pillar 3
  Scope of the Groups capital adequacy
     Capital ratios
  Basel II
    
    
    Basel I31 December
    
    
    31 December2008
    
    
    2007£m
    
    
    £mCore Tier 1 (after deductions)
    
    
    6.2
    %
    
    
    5.4
    %Tier 1
    
    
    8.5
    %
    
    
    7.3
    %Total capital
    
    
    14.0
    %
    
    
    11.4
    %
  28




---



##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 Regulatory capital resources
  31 December2008£mCore Tier 1 capital:Called up share capital
    
    
    1,148Share premium
    
    
    1,857Retained earnings and other reserves
    
    
    1,6894,694Deductions from Core Tier 1 capital:Intangible Assets
    
    
    (508
    )Securitisation positions
    
    
    (21
    )Expected Losses
    
    
    (257
    )Material Holdings
    
    
    (6
    )(792
    )Total Core Tier 1 capital after deductions
    
    
    3,902Non cumulative Preference Shares
    
    
    603Innovative Tier 1 instruments
    
    
    1,095Excess on limits for including innovative Tier 1 capital in total Tier 1 capital
    
    
    (213
    )Total Tier 1 Capital after deductions
    
    
    5,387Tier 2 capital:Subordinated debt
    
    
    4,543Excess innovative tier 1 capital
    
    
    213Other
    
    
    104,766Deductions from Tier 2 capital:Securitisation positions
    
    
    (21
    )Expected Losses
    
    
    (257
    )Material Holdings
    
    
    (6
    )Total Tier 2 capital after deductions
    
    
    4,482Deductions from Tier 1 and 2
    
    
    (988
    )Total Capital Resources
    
    
    8,881
       29




---



##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 Capital resources requirement
  2008£mCredit Risk  Standardised approach:Institutions
    
    
    34Corporates
    
    
    564Retail
    
    
    167Secured on real estate property
    
    
    187Past due items
    
    
    14Securitisation positions
    
    
    65Other items
    
    
    1931,224Credit Risk  IRB approach:Retail exposures secured by real estate collateral
    
    
    1,989Qualifying revolving retail
    
    
    169Other retail
    
    
    293Institutions
    
    
    124Corporates
    
    
    280Other
    
    
    212,876Counterparty risk capital component
    
    
    215Operational risk  standardised approach:
    
    
    398Market Risk:
    
    
    361Total Pillar 1 capital requirement
    
    
    5,074Risk weighted assets(based on an 8% capital charge)
    
    
    63,425
   Off-Balance Sheet Arrangements
  >
    
    It is normal in the UK to issue cheque guarantee cards to current account customers holding
chequebooks, as retailers do not generally accept cheques without such form of guarantee. The
guarantee is not automatic but depends on the retailer having sight of the cheque guarantee
card at the time the purchase is made. The bank is liable to honour these cheques even where
the customer doesnt have sufficient funds in his account. The banks guarantee liability is
in theory the number of cheques written and deposited with retailers multiplied by the amount
guaranteed per cheque, which can be between £50 and £100. In practice most customers will only
write cheques when they have funds in their account to meet the cheque, and cheques are
frequently presented without the benefit of the cheque guarantee. On this basis management
have assessed the risk with respect to this guarantee as highly remote and consider the risk
of loss as part of the provisioning requirement on bank accounts.>
    
    Standby letters of credit also represent the taking on of credit on
behalf of customers when actual funding is not required, normally
because a third party is not prepared to accept the credit risk of
Abbeys customer. These are also included in the normal credit
provisioning assessment alongside other forms of credit exposure.>
    
    The Group, as is normal in such activity, gives representations,
indemnities and warranties on the sale of subsidiaries and
businesses. The maximum potential amount of any claims made against
these is usually significantly higher than actual settlements.
Appropriate provision is made with respect to managements best
estimate of the likely outcome, either at the time of sale, or
subsequently if additional information becomes available.
  30




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##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 Liquidity
    Cash flows
 2008
    
    
    2007(1)
    
    
    2006(1)£m
    
    
    £m
    
    
    £mNet cash (outflow)/inflow from operating activities
    
    
    (22,115
    )
    
    
    (9,332
    )
    
    
    431Net cash inflow/(outflow)from investing activities
    
    
    17,705
    
    
    
    (196
    )
    
    
    (597
    )Net cash (outflow)/inflow from financing activities
    
    
    (7,382
    )
    
    
    4,776
    
    
    
    1,758(Decrease)/increase in cash and cash equivalents
    
    
    (11,792
    )
    
    
    (4,752
    )
    
    
    1,592
 (1)
    
    In 2008, the Group changed its accounting policy for cash equivalents to exclude trading
liabilities from its determination of cash equivalents. For more information, see the Accounting
Policies on page 85. There was no impact on the income statements or balance sheets of any period
or as at any date presented.
     Cash Flows from Operating Activities
    Cash Flows from Investing Activities
    31




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##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
  Cash Flows from Financing Activities
     Sources of liquidity
    Programme
    
    Outstanding at 31 December 2008
    
    
    Markets issued in$15bn medium-term notes
    
    $8.8bn
    
    Europe$4bn commercial paper
    
    $0.9bn
    
    Europe$20bn commercial paper
    
    $6.1bn
    
    United StatesEuro 2bn structured notes
    
    Euro 0.5bn
    
    EuropeEuro 25bn covered bond
    
    Euro 17.5bn
    
    Europe
   Securitisation of assets
  32




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##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 UK Government 2008 Credit Guarantee Scheme
    Uses of liquidity
   Contractual obligations
  Payments due by periodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    Over 5 years£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDeposits by banks(1)
    
    
    37,678
    
    
    
    37,490
    
    
    
    78
    
    
    
    110
    
    
    
    Deposits by customers(1)
    
    
    103,868
    
    
    
    97,237
    
    
    
    2,513
    
    
    
    2,011
    
    
    
    2,107Debt securities in issue(2)
    
    
    47,147
    
    
    
    18,774
    
    
    
    2,870
    
    
    
    1,208
    
    
    
    24,295Other borrowed funds
    
    
    2,076
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,076Subordinated liabilities
    
    
    5,826
    
    
    
    515
    
    
    
    515
    
    
    
    
    
    
    
    4,796Retirement benefit obligations
    
    
    796
    
    
    
    129
    
    
    
    132
    
    
    
    153
    
    
    
    382Operating lease obligations
    
    
    1,097
    
    
    
    104
    
    
    
    311
    
    
    
    85
    
    
    
    597Purchase obligations
    
    
    170
    
    
    
    86
    
    
    
    84
    
    
    
    
    
    
    
    Total
    
    
    198,658
    
    
    
    154,335
    
    
    
    6,503
    
    
    
    3,567
    
    
    
    34,523
 (1)
    
    Includes deposits by banks and deposits by customers that are classified in the balance sheet
as trading liabilities.(2)
    
    Includes debt securities in issue that are classified in the balance sheet as trading
liabilities and financial liabilities designated at fair value.
    33




---



##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 Interest rate sensitivity
    Changes in net interest income  volume and rate analysis
  2008/2007
    
    
    2007/2006Changes due to
    
    
    
    
    
    
    Changes due toTotal
    
    
    increase/(decrease) in
    
    
    Total
    
    
    increase/(decrease) inchange
    
    
    Volume
    
    
    Rate
    
    
    change
    
    
    Volume
    
    
    Rate£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mInterest incomeLoans and advances to banksUK
    
    
    198
    
    
    
    538
    
    
    
    (340
    )
    
    
    69
    
    
    
    85
    
    
    
    (16
    )Non-UK
    
    
    24
    
    
    
    17
    
    
    
    7
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    Loans and advances to customersUK
    
    
    650
    
    
    
    881
    
    
    
    (231
    )
    
    
    1,280
    
    
    
    390
    
    
    
    890Non-UK
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )Total interest incomeUK
    
    
    848
    
    
    
    1,419
    
    
    
    (571
    )
    
    
    1,349
    
    
    
    475
    
    
    
    874Non-UK
    
    
    24
    
    
    
    17
    
    
    
    7
    
    
    
    (3
    )
    
    
    (2
    )
    
    
    (1
    )872
    
    
    
    1,436
    
    
    
    (564
    )
    
    
    1,346
    
    
    
    473
    
    
    
    873Interest expenseDeposits by banksUK
    
    
    19
    
    
    
    (25
    )
    
    
    44
    
    
    
    105
    
    
    
    157
    
    
    
    (52
    )Deposits by customers  retail demand depositsUK
    
    
    4
    
    
    
    (261
    )
    
    
    265
    
    
    
    429
    
    
    
    72
    
    
    
    357Non-UK
    
    
    (48
    )
    
    
    (18
    )
    
    
    (30
    )
    
    
    58
    
    
    
    8
    
    
    
    50Deposits by customers  retail time depositsUK
    
    
    208
    
    
    
    959
    
    
    
    (751
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    1Non-UK
    
    
    30
    
    
    
    15
    
    
    
    15
    
    
    
    (2
    )
    
    
    22
    
    
    
    (24
    )Deposits by customers  wholesale depositsUK
    
    
    31
    
    
    
    25
    
    
    
    6
    
    
    
    (7
    )
    
    
    10
    
    
    
    (17
    )Non-UK
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    (63
    )
    
    
    (64
    )
    
    
    1Bonds and medium-term notesUK
    
    
    282
    
    
    
    816
    
    
    
    (534
    )
    
    
    668
    
    
    
    285
    
    
    
    383Non-UK
    
    
    48
    
    
    
    152
    
    
    
    (104
    )
    
    
    15
    
    
    
    (13
    )
    
    
    28Dated and undated loan capital and other
subordinated liabilitiesUK
    
    
    12
    
    
    
    15
    
    
    
    (3
    )
    
    
    (60
    )
    
    
    (21
    )
    
    
    (39
    )Non-UK
    
    
    17
    
    
    
    4
    
    
    
    13
    
    
    
    (1
    )
    
    
    (8
    )
    
    
    7Other interest-bearing liabilities UK
    
    
    (1
    )
    
    
    3
    
    
    
    (4
    )
    
    
    (3
    )
    
    
    (10
    )
    
    
    7Total interest expenseUK
    
    
    555
    
    
    
    1,532
    
    
    
    (977
    )
    
    
    1,130
    
    
    
    490
    
    
    
    640Non-UK
    
    
    44
    
    
    
    153
    
    
    
    (109
    )
    
    
    7
    
    
    
    (55
    )
    
    
    62599
    
    
    
    1,685
    
    
    
    (1,086
    )
    
    
    1,137
    
    
    
    435
    
    
    
    702Net interest income
    
    
    273
    
    
    
    (249
    )
    
    
    522
    
    
    
    209
    
    
    
    38
    
    
    
    171
 34




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##### Table of Contents



Business and Financial Review
 Balance Sheet Business Review
 Average balance sheet (1) (2)
 2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Averagebalance
    
    
    Interest
    
    
    rate
    
    
    balance
    
    
    Interest
    
    
    rate
    
    
    balance
    
    
    Interest
    
    
    rate£m
    
    
    £m
    
    
    %
    
    
    £m
    
    
    £m
    
    
    %
    
    
    £m
    
    
    £m
    
    
    %AssetsLoans and advances to banksUK
    
    
    12,620
    
    
    
    424
    
    
    
    3.36
    
    
    
    3,731
    
    
    
    226
    
    
    
    6.06
    
    
    
    2,416
    
    
    
    157
    
    
    
    6.50Non-UK
    
    
    454
    
    
    
    24
    
    
    
    5.29
    
    
    
    30
    
    
    
    1
    
    
    
    3.99
    
    
    
    53
    
    
    
    2
    
    
    
    3.77Loans and advances to customers(3)UK
    
    
    121,639
    
    
    
    7,465
    
    
    
    6.14
    
    
    
    107,709
    
    
    
    6,815
    
    
    
    6.33
    
    
    
    100,627
    
    
    
    5,536
    
    
    
    5.50Non-UK
    
    
    18
    
    
    
    1
    
    
    
    5.56
    
    
    
    22
    
    
    
    1
    
    
    
    4.55
    
    
    
    51
    
    
    
    2
    
    
    
    3.92Debt securitiesUK
    
    
    13
    
    
    
    1
    
    
    
    3.93
    
    
    
    8
    
    
    
    
    
    
    
    7.60
    
    
    
    1
    
    
    
    
    
    
    
    0.00Total average interest-earning assets,
interest income
    
    
    134,744
    
    
    
    7,915
    
    
    
    5.87
    
    
    
    111,500
    
    
    
    7,043
    
    
    
    6.32
    
    
    
    103,148
    
    
    
    5,697
    
    
    
    5.52Provision for loan losses
    
    
    (562
    )
    
    
    
    
    
    
    
    
    
    
    (458
    )
    
    
    
    
    
    
    
    
    
    
    (431
    )
    
    
    
    
    
    
    Trading business
    
    
    34,747
    
    
    
    
    
    
    
    
    
    
    
    68,612
    
    
    
    
    
    
    
    
    
    
    
    60,780
    
    
    
    
    
    
    
    Assets designated at fair value through profit
and loss
    
    
    12,755
    
    
    
    
    
    
    
    
    
    
    
    9,152
    
    
    
    
    
    
    
    
    
    
    
    18,336
    
    
    
    
    
    
    
    Non-interest-earning assets:Other
    
    
    22,585
    
    
    
    
    
    
    
    
    
    
    
    15,162
    
    
    
    
    
    
    
    
    
    
    
    17,815
    
    
    
    
    
    
    
    Total average assets
    
    
    204,269
    
    
    
    
    
    
    
    
    
    
    
    203,968
    
    
    
    
    
    
    
    
    
    
    
    199,648Non-UK assets as a % of total
    
    
    0.23
    %
    
    
    
    
    
    
    
    
    
    
    0.03
    %
    
    
    
    
    
    
    
    
    
    
    0.05
    %LiabilitiesDeposits by banksUK
    
    
    (4,509
    )
    
    
    (218
    )
    
    
    4.83
    
    
    
    (5,169
    )
    
    
    (199
    )
    
    
    3.85
    
    
    
    (1,938
    )
    
    
    (94
    )
    
    
    4.85Deposits by customers: retail demand(4)UK
    
    
    (50,298
    )
    
    
    (2,363
    )
    
    
    4.70
    
    
    
    (56,563
    )
    
    
    (2,359
    )
    
    
    4.17
    
    
    
    (54,529
    )
    
    
    (1,930
    )
    
    
    3.54Non-UK
    
    
    (1,482
    )
    
    
    (49
    )
    
    
    3.31
    
    
    
    (1,811
    )
    
    
    (97
    )
    
    
    5.36
    
    
    
    (1,490
    )
    
    
    (39
    )
    
    
    2.62Deposits by customers: retail time(4)UK
    
    
    (23,095
    )
    
    
    (547
    )
    
    
    2.37
    
    
    
    (6,033
    )
    
    
    (339
    )
    
    
    5.62
    
    
    
    (6,089
    )
    
    
    (341
    )
    
    
    5.60Non-UK
    
    
    (1,885
    )
    
    
    (92
    )
    
    
    4.87
    
    
    
    (1,532
    )
    
    
    (62
    )
    
    
    4.05
    
    
    
    (1,144
    )
    
    
    (64
    )
    
    
    5.59Deposits by customers: wholesale(4)UK
    
    
    (2,805
    )
    
    
    (102
    )
    
    
    3.64
    
    
    
    (2,080
    )
    
    
    (71
    )
    
    
    3.41
    
    
    
    (1,834
    )
    
    
    (78
    )
    
    
    4.25Non-UK
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58
    )
    
    
    (3
    )
    
    
    5.17
    
    
    
    (1,592
    )
    
    
    (66
    )
    
    
    4.15Bonds and medium-term notesUK
    
    
    (41,309
    )
    
    
    (1,957
    )
    
    
    4.74
    
    
    
    (27,776
    )
    
    
    (1,675
    )
    
    
    6.03
    
    
    
    (21,649
    )
    
    
    (1,007
    )
    
    
    4.65Non-UK
    
    
    (8,202
    )
    
    
    (325
    )
    
    
    3.96
    
    
    
    (5,293
    )
    
    
    (277
    )
    
    
    5.23
    
    
    
    (5,579
    )
    
    
    (262
    )
    
    
    4.70Dated and undated loan capital and other
subordinated liabilitiesUK
    
    
    (6,002
    )
    
    
    (400
    )
    
    
    6.66
    
    
    
    (5,778
    )
    
    
    (388
    )
    
    
    6.72
    
    
    
    (6,067
    )
    
    
    (448
    )
    
    
    7.38Non-UK
    
    
    (560
    )
    
    
    (62
    )
    
    
    11.07
    
    
    
    (511
    )
    
    
    (45
    )
    
    
    8.81
    
    
    
    (613
    )
    
    
    (46
    )
    
    
    7.50Other interest-bearing liabilities UK
    
    
    (917
    )
    
    
    (28
    )
    
    
    3.05
    
    
    
    (825
    )
    
    
    (29
    )
    
    
    3.52
    
    
    
    (1,179
    )
    
    
    (32
    )
    
    
    2.70Total
average interest-bearing liabilities, interest expense
    
    
    (141,064
    )
    
    
    (6,143
    )
    
    
    4.35
    
    
    
    (113,429
    )
    
    
    (5,544
    )
    
    
    4.89
    
    
    
    (103,703
    )
    
    
    (4,407
    )
    
    
    4.25Trading business
    
    
    (41,196
    )
    
    
    
    
    
    
    
    
    
    
    (64,342
    )
    
    
    
    
    
    
    
    
    
    
    (56,062
    )
    
    
    
    
    
    
    Liabilities designated at fair value through
profit and loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,847
    )
    
    
    
    
    
    
    
    
    
    
    (8,500
    )
    
    
    
    
    
    
    Non-interest-bearing liabilities:Other
    
    
    (18,434
    )
    
    
    
    
    
    
    
    
    
    
    (15,248
    )
    
    
    
    
    
    
    
    
    
    
    (28,292
    )
    
    
    
    
    
    
    Shareholders funds
    
    
    (3,575
    )
    
    
    
    
    
    
    
    
    
    
    (3,102
    )
    
    
    
    
    
    
    
    
    
    
    (3,091
    )
    
    
    
    
    
    
    Total average liabilities and shareholders funds
    
    
    (204,269
    )
    
    
    
    
    
    
    
    
    
    
    (203,968
    )
    
    
    
    
    
    
    
    
    
    
    (199,648
    )Non-UK liabilities as a % of total
    
    
    5.94
    %
    
    
    
    
    
    
    
    
    
    
    4.51
    %
    
    
    
    
    
    
    
    
    
    
    5.22
    %Interest income as
a percentage of
average
interest-earning
assets
    
    
    
    
    
    
    
    
    
    
    5.87
    
    
    
    
    
    
    
    
    
    
    
    6.32
    
    
    
    
    
    
    
    
    
    
    
    5.52Interest expense as
a percentage of
average
interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    4.35
    
    
    
    
    
    
    
    
    
    
    
    4.89
    
    
    
    
    
    
    
    
    
    
    
    4.25Interest spread
    
    
    
    
    
    
    
    
    
    
    1.52
    
    
    
    
    
    
    
    
    
    
    
    1.43
    
    
    
    
    
    
    
    
    
    
    
    1.27Net interest margin
    
    
    
    
    
    
    
    
    
    
    1.31
    
    
    
    
    
    
    
    
    
    
    
    1.34
    
    
    
    
    
    
    
    
    
    
    
    1.25
 (1)
    
    Average balances are based upon monthly data.(2)
    
    The ratio of average interest-earning assets to interest-bearing liabilities for the year
ended 31 December 2008 was 95.52% (2007: 98.30%, 2006: 99.46%).(3)
    
    Loans and advances to customers includes non-performing loans. See Analysis of end-of-year
provisions on loans and advances to customers in the Risk Management Report elsewhere in this
Annual Report and Accounts.(4)
    
    Demand deposits, time deposits and wholesale deposits are defined under Deposits above.
 35




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##### Table of Contents



Business and Financial Review
 
 Risk Management
  Summary
  Introduction
 Financial Risks and Risk Management 
 Discussion of Key Risks by Operating Segment
 >
    
    Risks in Retail Banking- The risks in this segment are described on pages 41 to 45,
including:
 >
    
    Credit risk, including its management, an analysis of types and credit quality
of retail lending, and disclosures relating to provisioning, arrears and recoveries.>
    
    Market risk, including its management.
 >
    
    Risks in Corporate Banking- The risk in this segment is described on pages 45 to 46, comprising:
 >
    
    Credit risk, including its management, mitigation, and the disclosure of exposure by rating of counterparty.>
    
    Market risk, including its management.
 >
    
    Risks in Global Banking & Markets- The risks in this segment are described on pages 47 to 49, including:
 >
    
    Credit risk, including its management, mitigation, and the disclosure of exposure by rating of counterparty.>
    
    Market risk, including its management, and disclosures on short-term market risk and structural market risk.>
    
    Trading risk, including details of segmental exposures and trading derivatives.
 >
    
    Risks in Private Banking- The risks in this segment are described on page 49, including a description of credit risk and
market risk in the entities which this segment incorporates.>
    
    Risks in Group Infrastructure- The risks in this segment are described on pages 50 to 51, including:
 >
    
    Credit risk, including its management, an analysis of types and credit quality
of lending, and disclosures relating to provisioning, arrears and recoveries.>
    
    Market risk, including its management, and disclosure of Net Interest Margin
Sensitivity and the Market Value of Equity sensitivity.>
    
    A description of the types of derivative contracts used to hedge risks in these
segments.
 The Impact of the Current Credit Environment
 Liquidity Risk
 Introduction
   36




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##### Table of Contents



Business and Financial Review
 Risk Management
  Risk Governance Framework
  
   First tier of risk governance
  Risk Committee
  Second tier of risk governance
  37




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##### Table of Contents



Business and Financial Review
 Risk Management
    >
    
    Group-wide risk policies;>
    
    Group-wide risk limits/parameters;>
    
    Approval processes relating to transactions that exceed local risk limits;>
    
    The systematic review of exposures to large clients, sectors, geographical areas and different risk types; and>
    
    Reporting to Banco Santander, S.A..
 Third tier of risk governance
  Non-Executive Directors
  Internal Audit
   Audit and Risk Committee
  >
    
    The oversight of the risk governance framework;>
    
    Review of the effectiveness of the Groups internal and external audit process;>
    
    Review of control policies and procedures including regulatory compliance and financial reporting;>
    
    The identification, assessment and reporting of risks; and>
    
    The risk governance structure and associated compliance with risk control policies and procedures.
 Financial Risks and Risk Management
     Financial Instruments
  38




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##### Table of Contents



Business and Financial Review
 Risk Management
 Operational Risk  Group-wide (unaudited)
  Managing operational risk (unaudited)
   Key operational risk activity in 2008 (unaudited)
    Credit Risk  Group-wide
 Significant concentrations of credit risk
  
  39




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##### Table of Contents



Business and Financial Review
 Risk Management
 Maximum exposure to credit risk
  2008
    
    
    2007£m
    
    
    £mTrading assets
    
    
    24,230
    
    
    
    32,378Purchase and resale agreements
    
    
    9,936
    
    
    
    24,049Derivatives
    
    
    32,281
    
    
    
    9,951Financial assets designated at fair value
    
    
    11,314
    
    
    
    11,783Loans and advances to customers
    
    
    129,023
    
    
    
    112,147Loans and advances to banks
    
    
    15,621
    
    
    
    3,441Other
    
    
    3,664
    
    
    
    3,241Third party exposures(1)
    
    
    226,069
    
    
    
    196,990
 (1)
    
    In addition, the Group is exposed to credit risk in respect of guarantees granted, loan
commitments and stock borrowing and lending agreements. The estimated maximum exposure to credit
risk is described in Note 37 to the Consolidated Financial Statements on page 121.
  Basel II (unaudited)
  Market risk  Group-wide
  Pension obligation risk  Group-wide
  Risk management
  40




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##### Table of Contents



Business and Financial Review
 Risk Management
 Risk Management in Retail Banking
 Credit risk in Retail Banking
  Residential Mortgages and secured lending
       Mortgage credit quality (1)
 2008
    
    
    2007
    
    
    2006Loan-to-value analysis:New business> 90%
    
    
    2
    %
    
    
    3
    %
    
    
    4
    %75% - 90%
    
    
    35
    %
    
    
    45
    %
    
    
    33
    %< 75%
    
    
    63
    %
    
    
    52
    %
    
    
    63
    %Average (at inception)
    
    
    64
    %
    
    
    64
    %
    
    
    61
    %Average loan-to-value of stock (indexed)
    
    
    51
    %
    
    
    46
    %
    
    
    44
    %New business profile:First-time buyers
    
    
    9
    %
    
    
    13
    %
    
    
    11
    %Home movers
    
    
    23
    %
    
    
    37
    %
    
    
    38
    %Remortgagers
    
    
    68
    %
    
    
    50
    %
    
    
    51
    %Average earnings multiple
    
    
    3.0
    
    
    
    3.0
    
    
    
    2.9
 (1)
    
    For main advances only. Does not include further advances. Excludes any fees added to the
loan, and only includes the drawn loan amount, not drawdown limits.
  >
    
    Arrears more than 90 days past due have increased from 0.60% in December 2007 to 0.95% at the end of 2008. In the same
period, industry arrears more than 90 days past due are forecast by the UK Council of Mortgage Lenders to have increased
from 1.10% to 2.03%.>
    
    Monthly mortgage completions in excess of 75% LTV fell from 47% in December 2007 to 13% in December 2008.
 Mortgage arrears and repossessions
  41




---



##### Table of Contents



Business and Financial Review
 Risk Management
   Group(1)(2)Mortgage arrears
    
    (Percentage of total mortgage loans by number)31 to 60 days in arrears31 December 2006
    
    
    1.1931 December 2007
    
    
    1.4831 December 2008
    
    
    1.3561 to 90 days in arrears31 December 2006
    
    
    0.5031 December 2007
    
    
    0.5931 December 2008
    
    
    0.76
 Group
    
    
    CML(2)(unaudited)(Percentage of total mortgage loans by number)3 to 5 months in arrears31 December 2006
    
    
    0.42
    
    
    
    0.5731 December 2007
    
    
    0.49
    
    
    
    0.6231 December 2008
    
    
    0.67
    
    
    
    1.016 to 11 months in arrears31 December 2006
    
    
    0.17
    
    
    
    0.3131 December 2007
    
    
    0.17
    
    
    
    0.3531 December 2008
    
    
    0.26
    
    
    
    0.6212 months or more in arrears31 December 2006
    
    
    0.03
    
    
    
    0.1431 December 2007
    
    
    0.03
    
    
    
    0.1331 December 2008
    
    
    0.02
    
    
    
    0.25
 (1)
    
    Group data is not readily available for arrears less than 31 days(2)
    
    Council of Mortgage Lenders data is not available for arrears less than 3 months
 Group
    
    
    CML (unaudited)Properties in possession
    
    (Percentage of total mortgage loans by number)31 December 2006
    
    
    0.04
    
    
    
    0.0831 December 2007
    
    
    0.05
    
    
    
    0.1031 December 2008
    
    
    0.07
    
    
    
    0.21Carrying amount of assets obtained as collateral
    
    £m31 December 2006
    
    
    4331 December 2007
    
    
    6431 December 2008
    
    
    113
 Restructured loans
  Banking and Consumer Credit.
 Personal Financial Services banking and unsecured personal loan arrears
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mTotal banking and unsecured personal loan arrears(1,2)
    
    
    158
    
    
    
    134
    
    
    
    167Total banking and unsecured personal loan asset
    
    
    2,691
    
    
    
    3,119
    
    
    
    3,936Banking and unsecured personal loan arrears as a % of asset
    
    
    5.87
    %
    
    
    4.30
    %
    
    
    4.25
    %
 (1)
    
    In 2008, banking arrears was defined as customers that had been in arrears for greater than
90 days. In prior years, it was defined as customers whose borrowings exceed their overdraft
by over £100. If the prior year definition were applied to 2008 data, the total arrears would increase by £53m.(2)
    
    Unsecured personal loan and credit card arrears are defined as the balances of accounts that
are three or more months in arrears (> 4 instalments).
 42




---



##### Table of Contents



Business and Financial Review
 Risk Management
 Provisions on loans and advances to customers
   >
    
    Observed provision- an observed provision is established for all
past due loans after a specified period of repayment default where it
is likely that some of the capital will not be repaid or recovered
through enforcement of any applicable security. The length of the
default period depends on the nature of the advance and is generally
no more than three months. Once a loan misses a payment (breach of
contractual terms) an assessment of the likelihood of collecting the
principal and overdue payments is made. This assessment is generally
made using statistical techniques developed on previous experience
and on projections of current market conditions to the time the loss
is expected to crystallise. These techniques estimate the propensity
of loans to go to write off and as a separate exercise, the loss
incurred on written off debt is monitored. For advances secured on
residential property, the propensity of loans to reach repossession
is determined with repossessed properties assessed on an individual
basis through the use of an external valuation, anticipated disposal
costs and the current exposure.>
    
    Incurred but not yet observed provision- an incurred but not yet
observed provision is made against loans, which have not missed a
payment but are known from past experience to have deteriorated since
the initial decision to lend was made. Based on historical evidence,
the number of accounts likely to default in the future as a result of
events present at the balance sheet date are identified through use
of statistical techniques.
  >
    
    Amounts written off- Unsecured loans are written off when all internal avenues of collecting
the debt have failed and the debt is passed onto external collection agencies. On secured
loans, the write off takes place on ultimate realisation of collateral value, or from claiming
on any mortgage indemnity guarantee or other insurance. All write offs are on a case by case
basis, taking account of the exposure at the date of write off, after accounting for the value
from any collateral or insurance held against the loan. The write-off policy is regularly
reviewed.
  Analysis of provisions on loans and advances to customers
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mObserved provisionAdvances secured on residential properties - UK
    
    
    174
    
    
    
    73
    
    
    
    45
    
    
    
    21
    
    
    
    9Other secured advances - UK
    
    
    37
    
    
    
    34
    
    
    
    75
    
    
    
    126
    
    
    
    148Unsecured personal advances - UK
    
    
    227
    
    
    
    249
    
    
    
    242
    
    
    
    158
    
    
    
    133Corporate advances - UK
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67Total observed provisions
    
    
    451
    
    
    
    356
    
    
    
    362
    
    
    
    305
    
    
    
    357Incurred but not yet observed provisionAdvances secured on residential properties - UK
    
    
    123
    
    
    
    102
    
    
    
    60
    
    
    
    35
    
    
    
    58Other secured advances - UK
    
    
    11
    
    
    
    8
    
    
    
    3
    
    
    
    
    
    
    
    3Unsecured personal advances - UK
    
    
    44
    
    
    
    85
    
    
    
    111
    
    
    
    54
    
    
    
    35Corporate advances - UK
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Total incurred but not yet observed provisions
    
    
    191
    
    
    
    195
    
    
    
    174
    
    
    
    89
    
    
    
    110Total provisions
    
    
    642
    
    
    
    551
    
    
    
    536
    
    
    
    394
    
    
    
    467
 43




---



##### Table of Contents



Business and Financial Review
 Risk Management
 Movements in provisions for impairment losses on loans and advances
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mProvisions at 31 December
    
    
    551
    
    
    
    536
    
    
    
    394
    
    
    
    467
    
    
    
    IFRS reclassifications
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    Provisions at 1 January
    
    
    551
    
    
    
    536
    
    
    
    394
    
    
    
    427
    
    
    
    865Disposal of subsidiary undertakings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )551
    
    
    
    536
    
    
    
    394
    
    
    
    427
    
    
    
    795Amounts written offAdvances secured on residential properties - UK
    
    
    (32
    )
    
    
    (9
    )
    
    
    (11
    )
    
    
    (5
    )
    
    
    (2
    )Other secured advances - UK
    
    
    (9
    )
    
    
    (25
    )
    
    
    (27
    )
    
    
    (36
    )
    
    
    (39
    )Unsecured personal advances - UK
    
    
    (262
    )
    
    
    (339
    )
    
    
    (205
    )
    
    
    (247
    )
    
    
    (136
    )Corporate advances - UK
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (144
    )(303
    )
    
    
    (373
    )
    
    
    (243
    )
    
    
    (288
    )
    
    
    (321
    )Advances
secured on residential properties - non-UK
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Other
secured advances - non-UK
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Total amounts written off
    
    
    (303
    )
    
    
    (373
    )
    
    
    (243
    )
    
    
    (288
    )
    
    
    (325
    )Observed provisions charged against profitAdvances secured on residential properties - UK
    
    
    132
    
    
    
    38
    
    
    
    35
    
    
    
    12
    
    
    
    3Other secured advances - UK
    
    
    14
    
    
    
    (17
    )
    
    
    (25
    )
    
    
    11
    
    
    
    155Unsecured personal advances - UK
    
    
    239
    
    
    
    346
    
    
    
    289
    
    
    
    221
    
    
    
    98Corporate advances - UK
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71398
    
    
    
    367
    
    
    
    299
    
    
    
    244
    
    
    
    327Advances
secured on residential properties - non-UK
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (1
    )Unsecured
personal advances - non-UK
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Total observed provisions charged against profit
    
    
    398
    
    
    
    367
    
    
    
    299
    
    
    
    241
    
    
    
    327Incurred but not yet observed provisions charged against profit
    
    
    (4
    )
    
    
    21
    
    
    
    86
    
    
    
    14
    
    
    
    (330
    )Total provisions charged against profit (including discontinued operations)
    
    
    394
    
    
    
    388
    
    
    
    385
    
    
    
    255
    
    
    
    (3
    )Provisions at the end of the year
    
    
    642
    
    
    
    551
    
    
    
    536
    
    
    
    394
    
    
    
    467
  Recoveries
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAdvances secured on residential properties - UK
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    3
    
    
    
    16Other secured advances - UK
    
    
    12
    
    
    
    6
    
    
    
    7
    
    
    
    7
    
    
    
    8Unsecured personal advances - UK
    
    
    33
    
    
    
    36
    
    
    
    32
    
    
    
    27
    
    
    
    28Total amount recovered
    
    
    46
    
    
    
    44
    
    
    
    41
    
    
    
    37
    
    
    
    52
 Group non-performing loans and advances (1)
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mGroup non-performing loans and advances that are impaired
    
    
    614
    
    
    
    296
    
    
    
    375
    
    
    
    314
    
    
    
    297Group non-performing loans and advances that are not impaired
    
    
    891
    
    
    
    596
    
    
    
    451
    
    
    
    568
    
    
    
    844Total non-performing loans and advances(2)
    
    
    1,505
    
    
    
    892
    
    
    
    826
    
    
    
    882
    
    
    
    1,141%
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Non-performing loans and advances as a % of loans and advances to customers(3)
    
    
    1.10
    
    
    
    0.66
    
    
    
    0.64
    
    
    
    0.74
    
    
    
    1.04Provision as a percentage of total non-performing loans and advances
    
    
    42.66
    
    
    
    61.77
    
    
    
    64.89
    
    
    
    44.67
    
    
    
    40.93
 (1)
    
    Loans and advances are classified as non-performing typically when the counterparty fails to
make payments when contractually due for three months or longer(2)
    
    All non-performing loans are UK(3)
    
    Loans and advances to customers includes trading assets and excludes finance leases
    44




---



##### Table of Contents



Business and Financial Review
 Risk Management
   Abbey Business
   Market risk in Retail Banking
  Risk Management in Corporate Banking
 Credit risk in Corporate Banking
  Managing credit risk
     45




---



##### Table of Contents



Business and Financial Review
 Risk Management
 Corporate Banking committed facilities net exposure by credit rating of the issuer or
counterparty (1)
 Social Housing
    
    
    Other
    
    
    Total2008
    
    £m
    
    
    £m
    
    
    £mAAA
    
    
    
    
    
    
    124
    
    
    
    124AA
    
    
    1,008
    
    
    
    100
    
    
    
    1,108A
    
    
    5,222
    
    
    
    450
    
    
    
    5,672BBB
    
    
    1,821
    
    
    
    3,016
    
    
    
    4,837BB
    
    
    100
    
    
    
    825
    
    
    
    925B
    
    
    10
    
    
    
    41
    
    
    
    51D
    
    
    
    
    
    
    22
    
    
    
    22Total
    
    
    8,161
    
    
    
    4,578
    
    
    
    12,739
 Social Housing
    
    
    Other
    
    
    Total2007
    
    £m
    
    
    £m
    
    
    £mAAA
    
    
    
    
    
    
    110
    
    
    
    110AA
    
    
    1,915
    
    
    
    18
    
    
    
    1,933A
    
    
    5,646
    
    
    
    227
    
    
    
    5,873BBB
    
    
    2,827
    
    
    
    703
    
    
    
    3,530BB
    
    
    383
    
    
    
    636
    
    
    
    1,019B
    
    
    86
    
    
    
    2
    
    
    
    88Total
    
    
    10,857
    
    
    
    1,696
    
    
    
    12,553
 (1)
    
    Internal ratings are applied to all exposures.
  Corporate Banking non-performing loans and advances (1)
 2008
    
    
    2007£m
    
    
    £mNon-performing loans and advances that are impaired
    
    
    54
    
    
    
    Non-performing loans and advances that are not impaired
    
    
    
    
    
    
    Total non-performing loans and advances(2)
    
    
    54
    
    
    
    Non-performing loans and advances as a percentage of loans and advances to customers(3)
    
    
    1.25
    %
    
    
    Provision as a percentage of total non-performing loans and advances
    
    
    48
    %
    
    
    
 (1)
    
    Amounts are only presented for 2008 and 2007 as this business only became operational in
early 2007.(2)
    
    Loans and advances are classified as non-performing typically when the counterparty fails to
make payments when contractually due for three months or longer.(3)
    
    All non-performing loans are UK loans.
   Credit risk mitigation
 Collateralisation
  Restructured loans
  Market risk in Corporate Banking
  46




---



##### Table of Contents



Business and Financial Review
 Risk Management
 Risk Management in Global Banking & Markets
 Credit risk in Global Banking & Markets
  Managing credit risk
      Credit risk mitigation
 (i) Netting arrangements
  (ii) Collateralisation
  Global Banking & Markets net exposure by credit rating of the issuer or counterparty (1)
 2008
    
    
    2007£m
    
    
    £mAAA
    
    
    10,625
    
    
    
    4,687AA
    
    
    10,865
    
    
    
    16,552A
    
    
    3,007
    
    
    
    4,396BBB
    
    
    251
    
    
    
    445BB
    
    
    91
    
    
    
    38B
    
    
    1
    
    
    
    5Total
    
    
    24,840
    
    
    
    26,123
 (1)
    
    Internal ratings are applied to all exposures.
  47




---



##### Table of Contents



Business and Financial Review
 Risk Management
 Market risk in Global Banking & Markets
  Managing market risk in Global Banking & Markets
   Short-term liquid market risk
 Structural market risk
    Trading Risk in Global Banking & Markets
     Actual Exposure at 31 December2008
    
    
    2007
    
    
    2006Group trading instruments
    
    £m
    
    
    £m
    
    
    £mInterest rate risks
    
    
    5.3
    
    
    
    3.0
    
    
    
    1.7Equity risks
    
    
    1.2
    
    
    
    2.2
    
    
    
    2.9Spread risks
    
    
    1.9
    
    
    
    1.9
    
    
    
    0.7Property risks
    
    
    6.8
    
    
    
    3.4
    
    
    
    1.2Other risks(1)
    
    
    0.9
    
    
    
    0.3
    
    
    
    0.5Correlation offsets(2)
    
    
    (2.5
    )
    
    
    (2.3
    )
    
    
    (1.6
    )Total correlated one-day Value at Risk
    
    
    13.6
    
    
    
    8.5
    
    
    
    5.4
 48




---



##### Table of Contents



Business and Financial Review
 Risk Management
 Exposure for the year ended 31 DecemberAverage exposure
    
    
    Highest exposure
    
    
    Lowest exposure2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2006Group trading instruments
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mInterest rate risks
    
    
    3.6
    
    
    
    1.7
    
    
    
    1.8
    
    
    
    5.6
    
    
    
    3.7
    
    
    
    2.7
    
    
    
    2.5
    
    
    
    0.9
    
    
    
    1.2Equity risks
    
    
    2.0
    
    
    
    2.4
    
    
    
    2.7
    
    
    
    3.5
    
    
    
    3.7
    
    
    
    3.9
    
    
    
    1.0
    
    
    
    1.6
    
    
    
    2.0Spread risks
    
    
    1.3
    
    
    
    0.9
    
    
    
    1.6
    
    
    
    2.8
    
    
    
    2.0
    
    
    
    2.3
    
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.7Property risks
    
    
    4.7
    
    
    
    2.3
    
    
    
    1.5
    
    
    
    7.4
    
    
    
    3.5
    
    
    
    2.0
    
    
    
    3.2
    
    
    
    1.0
    
    
    
    1.2Other risks(1)
    
    
    0.6
    
    
    
    0.3
    
    
    
    0.4
    
    
    
    1.0
    
    
    
    1.2
    
    
    
    0.7
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1Correlation offsets(2)
    
    
    (2.2
    )
    
    
    (1.6
    )
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total correlated one-day Value at Risk
    
    
    10.0
    
    
    
    6.0
    
    
    
    6.3
    
    
    
    14.5
    
    
    
    8.8
    
    
    
    7.4
    
    
    
    8.0
    
    
    
    4.1
    
    
    
    5.1
 (1)
    
    Other risks include foreign exchange risk.(2)
    
    The highest and lowest exposure figures reported for each risk type did not necessarily occur
on the same day as the highest and lowest total correlated one-day Value-at-Risk. A
corresponding correlation offset effect cannot be calculated and is therefore omitted from the
above table.
  Derivatives held for Trading Purposes
  Credit Derivatives
  Risk Management in Private Banking
 Credit risk in Private Banking
 Cater Allen
   2008
    
    
    2007£m
    
    
    £mLoans and advances to customers
    
    
    3.8
    
    
    
    3.7Other
    
    
    0.2
    
    
    
    0.3Third party exposures
    
    
    4.0
    
    
    
    4.0
 Abbey International
  James Hay
  Abbey Sharedealing
  49




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##### Table of Contents



Business and Financial Review
 Risk Management
 Market risk in Private Banking
  Managing market risk
  Risk Management in Group Infrastructure
  Credit risk in Group Infrastructure
  Managing credit risk
   Group Infrastructure net exposure by credit rating of the issuer or counterparty (1)
 2008
    
    
    2007£m
    
    
    £mAAA
    
    
    9,464
    
    
    
    7,254AA
    
    
    3,193
    
    
    
    643A
    
    
    4,982
    
    
    
    637BBB
    
    
    1,174
    
    
    
    43D
    
    
    10
    
    
    
    5Total
    
    
    18,823
    
    
    
    8,582
 (1)
    
    Internal ratings are applied to all exposures.
 Market risk in Group Infrastructure
   50




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##### Table of Contents



Business and Financial Review
 Risk Management
  Managing market risks in Group Infrastructure
   >
    
    Net Interest Margin sensitivity: the sensitivity of annual net
interest margin to an instantaneous and unexpected adverse 100 basis
point parallel shock to the yield curve.>
    
    Market Value of Equity sensitivity: the sensitivity of the net
present value of interest rate sensitive positions to an
instantaneous and unexpected adverse 100 basis point parallel shock
to the yield curve.
   2008
    
    
    2007£m
    
    
    £mNet interest margin sensitivity (100 basis points adverse parallel shock)
    
    
    (64
    )
    
    
    (7
    )Market value of equity sensitivity (100 basis points adverse parallel shock)
    
    
    (153
    )
    
    
    (197
    )
  Derivatives
     Activity
    
    Risk
    
    Type of hedgeManagement of the return on variable rate assets
financed by shareholders funds and net
non-interest-bearing liabilities.
    
    Reduced profitability due to falls in interest rates.
    
    Receive fixed interest rate swaps.Management of the basis between administered rate
assets and liabilities and wholesale market
rates.
    
    Reduced profitability due to adverse changes in the
basis spread.
    
    Basis swaps.Management of repricing profile of wholesale
funding.
    
    Reduced profitability due to adverse movement in
wholesale interest rates when large volumes of
wholesale funding are repriced.
    
    Forward rate agreements.Fixed rate lending and investments.
    
    Sensitivity to increases in interest rates.
    
    Pay fixed interest rate swaps.Fixed rate retail and wholesale funding.
    
    Sensitivity to falls in interest rates.
    
    Receive fixed interest rate swaps.Equity-linked retail funding.
    
    Sensitivity to increases in equity market indices.
    
    Receive equity swaps.Management of other net interest income on retail
activities.
    
    Sensitivity of income to changes in interest rates.
    
    Interest rate swaps.Issuance of products with embedded equity options.
    
    Sensitivity to changes in underlying index and index
volatility causing option exercise.
    
    Interest rate swaps combined with
equity options.Lending and issuance of products with embedded
interest rate options.
    
    Sensitivity to changes in underlying rate and rate
volatility causing option exercise.
    
    Interest rate swaps plus caps/floors.Investment in, and issuance of, bonds with
put/call features.
    
    Sensitivity to changes in rates causing option exercise.
    
    Interest rate swaps combined with
swaptions(1)and other
matched options.
 (1)
    
    A swaption is an option on a swap that gives the holder the right but not the obligation
to buy or sell a swap. 51




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##### Table of Contents



Business and Financial Review
 Risk Management
 Impact of the Current Credit Environment
    Floating Rate Notes
 Provisions
    
    
    
    
    
    
    Value as %and
    
    
    
    
    
    
    of nominalNominal value
    
    
    Fair value movement
    
    
    write-offs
    
    
    Fair value
    
    
    valueIncomestatement
    
    
    Reserves2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008Country
    
    £m
    
    
    %
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    %UK
    
    
    2,153
    
    
    
    42
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    2,194
    
    
    
    102Italy
    
    
    215
    
    
    
    4
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    215
    
    
    
    100Spain
    
    
    522
    
    
    
    10
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    523
    
    
    
    100Rest of Europe
    
    
    1,722
    
    
    
    34
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    1,676
    
    
    
    97US
    
    
    108
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    101Rest of World
    
    
    384
    
    
    
    8
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    384
    
    
    
    1005,104
    
    
    
    100
    
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    5,101
    
    
    
    100
 Provisions
    
    
    
    
    
    
    Value as %and
    
    
    
    
    
    
    of nominalNominal value
    
    
    Fair value movement
    
    
    write-offs
    
    
    Fair value
    
    
    valueIncomestatement
    
    
    Reserves2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008Credit rating
    
    £m
    
    
    %
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    %AA and above
    
    
    4,085
    
    
    
    80
    
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    4,062
    
    
    
    99A
    
    
    1,019
    
    
    
    20
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    1,039
    
    
    
    1025,104
    
    
    
    100
    
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    5,101
    
    
    
    100
   Asset-Backed Securities
  Provisions
    
    
    
    
    
    
    Value as %and
    
    
    
    
    
    
    of nominalNominal value
    
    
    Fair value movement
    
    
    write-offs
    
    
    Fair value
    
    
    valueIncomestatement
    
    
    Reserves2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008Country
    
    £m
    
    
    %
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    %Europe (excluding UK)ABS
    
    
    363
    
    
    
    8
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    336
    
    
    
    92MBS
    
    
    4,155
    
    
    
    92
    
    
    
    (305
    )
    
    
    
    
    
    
    
    
    
    
    3,751
    
    
    
    904,518
    
    
    
    100
    
    
    
    (328
    )
    
    
    
    
    
    
    
    
    
    
    4,087
    
    
    
    90
 52




---



##### Table of Contents



Business and Financial Review
 Risk Management
 Provisions
    
    
    
    
    
    
    Value as %and
    
    
    
    
    
    
    of nominalNominal value
    
    
    Fair value movement
    
    
    write-offs
    
    
    Fair value
    
    
    valueIncomestatement
    
    
    Reserves2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008Credit rating
    
    £m
    
    
    %
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    %AAAABS
    
    
    352
    
    
    
    8
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    325
    
    
    
    92MBS
    
    
    3,855
    
    
    
    85
    
    
    
    (266
    )
    
    
    
    
    
    
    
    
    
    
    3,496
    
    
    
    914,207
    
    
    
    93
    
    
    
    (289
    )
    
    
    
    
    
    
    
    
    
    
    3,821
    
    
    
    91Aa1ABS
    
    
    11
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    91MBS
    
    
    300
    
    
    
    7
    
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    85311
    
    
    
    7
    
    
    
    (39
    )
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    854,518
    
    
    
    100
    
    
    
    (328
    )
    
    
    
    
    
    
    
    
    
    
    4,087
    
    
    
    90
  Collateralised Debt and Loan Obligations
   Structured Investment Vehicles
  Monoline Insurers
  Exposure to Off-Balance Sheet Entities sponsored by the Group
  Credit Derivatives
  Lending Activities
  Liquidity
  53




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##### Table of Contents



Business and Financial Review
 Risk Management
 Liquidity risk
    >
    
    Secured and unsecured money-market funding (including unsecured cash, repo, CD and CP issuance);>
    
    Senior debt issuance (including discrete bond issues and MTNs);>
    
    Mortgage-backed funding (including securitisation and covered bond issuance);>
    
    Subordinated debt and capital issuance (although the primary purpose is not funding).
   >
    
    Loss of customer deposits;>
    
    Loss of access to wholesale funding markets (including foreign exchange swaps) or counterparties;>
    
    Intra-day payments systems dislocation; and>
    
    Contingent liabilities arising from mortgage-backed or other funding, such as collateral calls or early amortisation.
 Liquidity risk management
      Short-term, tactical liquidity management:
 >
    
    Liquid assets a buffer of liquid assets is held to
cover unexpected cashflows in extreme but plausible
stress scenarios. In the Groups case, the largest stress
event is likely to include large and unexpected deposit
withdrawals by retail customers.
 54




---



##### Table of Contents



Business and Financial Review
 Risk Management
 >
    
    Intra-day collateral management to ensure that
adequate collateral is available to support payments in
each payment or settlement system in which the Group
participates, as they fall due.
 Strategic liquidity management:
 >
    
    Structural balance sheet shape to manage the extent of
maturity transformation (investment of shorter term
funding in longer term assets), the funding of
non-marketable assets with wholesale funding and the
extent to which non-marketable assets can be used to
generate liquidity.>
    
    Wholesale funding strategy to avoid over-reliance on
any individual counterparty, currency, market or product,
or group of counterparties, currencies, markets or
products that may become highly correlated in a stress
scenario; and to avoid excessive concentrations in the
maturity of wholesale funding.>
    
    Wholesale funding capacity to maintain and promote
counterparty relationships, monitor line availability and
ensure funding capacity is maintained through ongoing use
of lines and markets.
   >
    
    the Treasurer and Head of Asset and Liability Management is
responsible for the rapid assessment of the implications of a sudden,
unexpected event on the day-to-day liquidity of the Group, and for
the decision to activate the Liquidity Contingency Plan; and>
    
    the liquidity crisis management team, under the chairmanship of the
Chief Financial Officer, is the decision-making authority in the
event of a liquidity crisis, and is responsible for implementing the
Liquidity Contingency Plan.
  Current market conditions
      55




---



##### Table of Contents



Business and Financial Review
 Risk Management
 Maturities of financial liabilities
  GroupUp to 3
    
    
    3-12
    
    
    1-5
    
    
    Over 5Demand
    
    
    months
    
    
    months
    
    
    years
    
    
    years
    
    
    TotalAt 31 December 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDeposits by banks
    
    
    1,096
    
    
    
    1,994
    
    
    
    147
    
    
    
    117
    
    
    
    
    
    
    
    3,354Deposits by customers
    
    
    73,735
    
    
    
    8,116
    
    
    
    14,144
    
    
    
    3,405
    
    
    
    743
    
    
    
    100,143Derivative financial instruments
    
    
    1,377
    
    
    
    1,294
    
    
    
    2,581
    
    
    
    8,657
    
    
    
    24,408
    
    
    
    38,317Trading liabilities
    
    
    5,071
    
    
    
    31,253
    
    
    
    1,817
    
    
    
    1,667
    
    
    
    1,554
    
    
    
    41,362Financial liabilities designated at fair value
    
    
    
    
    
    
    1,495
    
    
    
    994
    
    
    
    1,832
    
    
    
    1,160
    
    
    
    5,481Debt securities in issue
    
    
    
    
    
    
    11,122
    
    
    
    5,635
    
    
    
    7,357
    
    
    
    42,768
    
    
    
    66,882Other borrowed funds
    
    
    
    
    
    
    60
    
    
    
    93
    
    
    
    493
    
    
    
    4,110
    
    
    
    4,756Subordinated liabilities
    
    
    
    
    
    
    216
    
    
    
    242
    
    
    
    2,069
    
    
    
    5,788
    
    
    
    8,315Total financial liabilities
    
    
    81,279
    
    
    
    55,550
    
    
    
    25,653
    
    
    
    25,597
    
    
    
    80,531
    
    
    
    268,610
 CompanyUp to 3
    
    
    3-12
    
    
    1-5
    
    
    Over 5Demand
    
    
    months
    
    
    months
    
    
    years
    
    
    years
    
    
    TotalAt 31 December 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDeposits by banks
    
    
    2,907
    
    
    
    18,354
    
    
    
    19,638
    
    
    
    58,758
    
    
    
    36,477
    
    
    
    136,134Deposits by customers
    
    
    64,514
    
    
    
    18,286
    
    
    
    14,516
    
    
    
    14,001
    
    
    
    59,490
    
    
    
    170,807Derivative financial instruments
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    2,067
    
    
    
    5,258
    
    
    
    7,501Trading liabilities
    
    
    4
    
    
    
    22
    
    
    
    748
    
    
    
    
    
    
    
    
    
    
    
    774Debt securities in issue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other borrowed funds
    
    
    
    
    
    
    45
    
    
    
    46
    
    
    
    245
    
    
    
    1,247
    
    
    
    1,583Subordinated liabilities
    
    
    
    
    
    
    232
    
    
    
    288
    
    
    
    2,316
    
    
    
    8,651
    
    
    
    11,487Total financial liabilities
    
    
    67,601
    
    
    
    36,939
    
    
    
    35,236
    
    
    
    77,387
    
    
    
    111,123
    
    
    
    328,286
 GroupUp to 3
    
    
    3-12
    
    
    1-5
    
    
    Over 5Demand
    
    
    months
    
    
    months
    
    
    years
    
    
    years
    
    
    TotalAt 31 December 2007
    
    £m
    

    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDeposits by banks
    
    
    416
    
    
    
    7,318
    
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    7,991Deposits by customers
    
    
    55,766
    
    
    
    8,541
    
    
    
    3,668
    
    
    
    1,920
    
    
    
    166
    
    
    
    70,061Derivative financial instruments
    
    
    3
    
    
    
    502
    
    
    
    731
    
    
    
    4,855
    
    
    
    10,891
    
    
    
    16,982Trading liabilities
    
    
    21,069
    
    
    
    28,973
    
    
    
    2,931
    
    
    
    1,409
    
    
    
    1,515
    
    
    
    55,897Financial liabilities designated at fair value
    
    
    
    
    
    
    1,598
    
    
    
    2,111
    
    
    
    3,647
    
    
    
    1,800
    
    
    
    9,156Debt securities in issue
    
    
    
    
    
    
    8,696
    
    
    
    2,437
    
    
    
    8,433
    
    
    
    47,619
    
    
    
    67,185Other borrowed funds
    
    
    
    
    
    
    56
    
    
    
    80
    
    
    
    424
    
    
    
    3,394
    
    
    
    3,954Subordinated liabilities
    
    
    
    
    
    
    194
    
    
    
    223
    
    
    
    1,820
    
    
    
    5,456
    
    
    
    7,693Total financial liabilities
    
    
    77,254
    
    
    
    55,878
    
    
    
    12,438
    
    
    
    22,508
    
    
    
    70,841
    
    
    
    238,919
 CompanyUp to 3
    
    
    3-12
    
    
    1-5
    
    
    Over 5Demand
    
    
    months
    
    
    months
    
    
    years
    
    
    years
    
    
    TotalAt 31 December 2007
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDeposits by banks
    
    
    2,060
    
    
    
    14,635
    
    
    
    8,897
    
    
    
    36,497
    
    
    
    6,444
    
    
    
    68,533Deposits by customers
    
    
    52,806
    
    
    
    7,332
    
    
    
    4,090
    
    
    
    10,088
    
    
    
    33,978
    
    
    
    108,294Derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    2,658
    
    
    
    2,752Debt securities in issue
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Other borrowed funds
    
    
    
    
    
    
    45
    
    
    
    46
    
    
    
    245
    
    
    
    1,280
    
    
    
    1,616Subordinated liabilities
    
    
    
    
    
    
    205
    
    
    
    257
    
    
    
    1,999
    
    
    
    7,570
    
    
    
    10,031Total financial liabilities
    
    
    54,866
    
    
    
    22,221
    
    
    
    13,290
    
    
    
    48,923
    
    
    
    51,930
    
    
    
    191,230
  56




---



##### Table of Contents



Report of the Directors
 
 Directors
 Board of Directors
As at 31 December 2008
 Chairman
 Lord Burns
  Executive Directors
 António Horta-Osório
Chief Executive
  David Bennett
Executive Director, Integration Advisor and Intermediaries
  Nathan Bostock
 Chief Financial Officer and Executive Director, Retail Products & Marketing, Human Resources,
Credit Cards and Insurance
  Alison Brittain
Executive Director, Retail Distribution
  57




---



##### Table of Contents



Report of the Directors
 Directors
 Non-Executive Directors
 Juan Rodríguez Inciarte
Deputy Chairman
  Jane Barker
  Roy Brown
  José María Carballo
  José María Fuster
  Rosemary Thorne
  Keith Woodley
  58




---



##### Table of Contents



Report of the Directors
 
 Directors Report
 Corporate Structure
   Principal Activities and Business Review
   Further information on the development and performance of the business of the Group, both at a
consolidated level and analysed by division can be found in the following sections:
 >
    
    An analysis of the Groups development and performance during the year is contained in the Business Review -
Summary on pages 9 to 12.>
    
    A further detailed analysis of the Personal Financial Services businesses is contained in the Business Review -
Personal Financial Services on pages 13 to 19.>
    
    Further analyses of the Sold Life Businesses is contained in the Business Review  Sold Life Businesses on page 19.
 Further information on the position of the Group at the end of the year can be found in the following sections:
 >
    
    An analysis of the Personal Financial Services business flows is contained in the Business Review  Personal
Financial Services on pages 14 to 16.>
    
    The Balance Sheet Business Review can be found on pages 22 to 35, including a review of capital management and
resources on page 28, details of capital expenditure on page 26, off-balance sheet arrangements on page 30,
liquidity on pages 31 to 33, and contractual obligations on page 33.>
    
    The Groups key performance indicators are described in the Business Review  Summary on page 12.
  Results and Dividends
  Recent Developments
   Post Balance Sheet Events
  59




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##### Table of Contents



Report of the Directors
 Directors
Report
 Going Concern
    >
    
    Budgets and forecastsSince the acquisition of the Company by Banco Santander, S.A., the Group has a history of
profitable operations. Management prepares a 3-year plan (the 3-Year Plan) that forecasts
balance sheet, income and margin, by product, with a particular focus on the forthcoming
year.
 >
    
    Review and reforecastThe 3-Year Plan, its assumptions, forecast results and key sensitivities are reviewed
by senior management and presented by the Group Financial Controller to the Executive
Committee, the Board of Directors and to senior executives of Banco Santander, S.A..
The budget is reforecast on a monthly basis and reviewed by the Executive Committee
and the Board of Directors. As part of the budgets and planning process, a
particular emphasis is placed on ensuring the sustainability of earnings, and
achieving and maintaining a high level of operating efficiency in the Group (measured
by the PFS trading cost:income ratio) to enable competitive products to be developed
for customers.>
    
    Stress testingTo assess the Groups ability to adapt to various market challenges, the budgets are
stress tested as part of the Groups internal capital adequacy assessment process
(ICAAP) under Basel II. Several scenarios are modelled, including a severe
scenario, and senior management makes an assessment of how this would affect the
Groups profit and funding plans.
 >
    
    Borrowing requirements and Liability managementThe Groups financial plans are constructed to ensure that they allow the Group to meet its
financial obligations as they fall due, both with respect to maturing existing liabilities
and future borrowing requirements.
    >
    
    Contingent liabilitiesThe Directors, via the Audit & Risk Committee, also consider the Groups exposure to
contingent liabilities. This consideration addresses contingent liabilities experienced by
the Group in the past, such as legal proceedings, guarantees, operating lease commitments
and product misselling liabilities, but also considers whether there are any new
contingencies such as those arising in respect of the UK Financial Services Compensation
Scheme.
   60




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##### Table of Contents



Report of the Directors
 Directors
Report
 >
    
    Products and marketsThe Directors review information about the major aspects of the economic environment within
which the Group operates at monthly Board meetings. This information includes an economic
update which contains data on key economic and market trends. In addition, the Groups
Economic Analysis team monitors and provides information to the Board on current and
prospective economic and market developments. Retail financial markets, such as the housing
market, are a major focus for analysing current trends and potential developments.
   >
    
    Financial risk managementThe Groups risk management focuses on major areas of risk, namely credit risk, market risk,
liquidity risk, and operational risk. The Risk Management Report contained in the Annual
Report and Accounts sets out in detail how the Group manages these risks.>
    
    Financial adaptabilityThe Directors also consider the ability of the Group to take effective action to alter the
amounts and timing of cash flows so that it can respond to unexpected needs or
opportunities. Such financial adaptability mitigates the areas of financial risk above in
considering the appropriateness of the going concern presumption in relation to the Group.
In determining the financial adaptability of the Group, the Directors have considered the
ability of the Group to:
 >
    
    Obtain new sources of financeAbbey minimises refinancing risk by sourcing funds from a variety of markets as
appropriate and subject to consideration of the appropriate leverage ratio and
funding mix for the Group, and in particular customer deposit levels and medium-term
financing. Abbey actively manages its relationships with existing providers of
funding and considers new sources of funds as and when they arise.
  -
    
    money markets: both unsecured (including interbank and customer
deposits, and issuances of certificates of deposit and commercial paper) and
secured (including repos in open market operations);-
    
    debt capital markets (including discrete bond issues and medium term notes);-
    
    mortgage-backed funding (including securitisation and covered bond issuances); and-
    
    capital instrument issuance (although primarily issued to maintain capital ratios).
 In addition to day-to-day funding sources, Abbey has access to contingent sources
from Central Banks, including the Bank of England, the US Federal Reserve and
indirectly the European Central Bank. Abbey ensures that it has access to these
contingent facilities as part of its prudent liquidity risk management. See the
Risk Management section of the Annual Report and Accounts for further details on Liquidity Risk
Management.
  >
    
    Obtain financial support from other group companiesFor liquidity purposes, Abbey operates on a stand-alone basis. However, in case of
stress conditions, Abbey would consult with its parent company, Banco Santander,
S.A., about financial support.>
    
    Continue business by making limited reductions in the level of operations or by
making use of alternative resourcesAbbey maintains and regularly updates a Contingency Funding Plan to cover potential
extreme scenarios. In addition, the 3-Year Plan is stressed, as part of the ICAAP
process, to ensure Abbey can accommodate extreme scenarios and the impact this would
have on the Plan and profits. In accommodating these extreme scenarios, various
management levers would be utilised, including the encashment of certain liquid
assets and a reduction in new business in Retail Banking and Corporate
Banking.
  61




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Report of the Directors
 Directors
Report
 Directors
    Committees of the Board
  Audit and Risk Committee
     Remuneration Committee
  62




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Report of the Directors
 Directors
Report
 Directors Remuneration (audited)
 £Salaries and fees
    
    
    2,946,081Performance-related payments
    
    
    5,672,908Other taxable benefits
    
    
    Total remuneration excluding pension contributions
    
    
    8,618,989Pension contributions
    
    
    141,486Compensation for loss of office
    
    
    
  Medium-Term Incentive Plan (audited)
   Long-Term Incentive Plan (audited)
  Remuneration of Highest Paid Director (audited)
  Retirement Benefits (audited)
   Non-Executive Directors (audited)
  Directors Interests and Related Party Transactions
   63




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Report of the Directors
 Directors
Report
  Third Party Indemnities
  Financial Risk Management Objectives
  Pension Funds
       Market Value of Land and Buildings
  Disability
  Employee Involvement
Employee share ownership
   th
 64




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Report of the Directors
 Directors
Report
  Communication
  Consultation
   Donations
  Political Contributions
 Suppliers
  Policy and Practice on Payment of Creditors
  Code of Ethics
   >
    
    Abide by all relevant laws and regulations.>
    
    Act with integrity in all their business actions on Abbeys behalf.>
    
    Not use their authority or office for personal gain.>
    
    Conduct business relationships in a transparent manner.
 65




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Report of the Directors
 Directors
Report
 >
    
    Reject all improper practices or dealings they may be exposed to.>
    
    Be individually responsible for keeping to the Code of Conduct.
 > > >
  Disclosure Controls and Procedures (US Sarbanes-Oxley Act 2002)
  Managements Report on Internal Control over Financial Reporting
  >
    
    Policies and procedures that relate to the maintenance of records
that fairly and accurately reflect the transactions and disposition
of assets.>
    
    Controls providing reasonable assurance that transactions are
recorded as necessary to permit the preparation of financial
statements in accordance with IFRS, and that receipts and
expenditures are being made only as authorised by management.>
    
    Controls providing reasonable assurance regarding prevention or
timely detection of unauthorised acquisition, use or disposition of
assets that could have a material effect on the financial statements.
     66




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Report of the Directors
 Directors
Report
 Relevant Audit Information
 >
    
    so far as the Director is aware, there is no relevant audit information of which Abbeys auditors are unaware; and>
    
    the Director has taken all steps that he/she ought to have taken as a Director to make himself/herself aware of any
relevant audit information and to establish that Abbeys auditors are aware of that information.
  Statement of Directors Responsibilities
     >
    
    properly select and apply accounting policies;>
    
    present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;>
    
    provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entitys financial position and
financial performance; and>
    
    make an assessment of the companys ability to continue as a going concern.
   Auditors
  By order of the Board
 
 
 67




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Report of the Directors
 
 Supervision and Regulation
  UK
   European Union
 ,
 Basel II
   Other Changes to Capital Adequacy and Liquidity Arrangements
  Other Regulatory Developments
   68




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Financial Statements
 Contents to Financial Statements
 Financial Statements71
    
    Report of Independent Registered Public Accounting Firm  US opinion72
    
    Consolidated Income Statement for the years ended 31 December 2008, 2007 and 200673
    
    Consolidated Balance Sheet as at 31 December 2008 and 200774
    
    Consolidated Statement of Recognised Income and Expense for the years ended 31
December 2008, 2007 and 200674
    
    Consolidated Cash Flow Statement for the years ended 31December 2008, 2007 and 200675
    
    Company Balance Sheet as at 31 December 2008 and 200776
    
    Company Statement of Recognised Income and Expense for the years ended 31 December
2008, 2007, and 200676
    
    Company Cash Flow Statement for the years ended 31 December 2008, 2007 and 200677
    

Accounting Policies96
    

Notes to the Financial Statements




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##### Table of Contents



Financial Statements
 
 Report of Independent Registered Public Accounting Firm
 To the Board of Directors and Shareholder of Abbey National plc
     
 Deloitte LLP




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##### Table of Contents



Financial Statements
 
 Consolidated Income Statement
  2008
    
    
    2007
    
    
    2006Notes
    
    
    £m
    
    
    £m
    
    
    £mInterest and similar income
    
    
    2
    
    
    
    7,915
    
    
    
    7,043
    
    
    
    5,644Interest expense and similar charges
    
    
    2
    
    
    
    (6,143
    )
    
    
    (5,544
    )
    
    
    (4,416
    )Net interest income
    
    
    
    
    
    
    1,772
    
    
    
    1,499
    
    
    
    1,228Fee and commission income
    
    
    3
    
    
    
    768
    
    
    
    785
    
    
    
    789Fee and commission expense
    
    
    3
    
    
    
    (97
    )
    
    
    (90
    )
    
    
    (90
    )Net fee and commission income
    
    
    
    
    
    
    671
    
    
    
    695
    
    
    
    699Dividend income
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Net trading and other income
    
    
    4
    
    
    
    561
    
    
    
    587
    
    
    
    542Total operating income
    
    
    
    
    
    
    3,004
    
    
    
    2,782
    
    
    
    2,470Administration expenses
    
    
    5
    
    
    
    (1,343
    )
    
    
    (1,369
    )
    
    
    (1,420
    )Depreciation and amortisation
    
    
    6
    
    
    
    (202
    )
    
    
    (205
    )
    
    
    (215
    )Total operating expenses excluding provisions and charges
    
    
    
    
    
    
    (1,545
    )
    
    
    (1,574
    )
    
    
    (1,635
    )Impairment losses on loans and advances
    
    
    8
    
    
    
    (348
    )
    
    
    (344
    )
    
    
    (344
    )Provisions for other liabilities and charges
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    (63
    )Total operating provisions and charges
    
    
    
    
    
    
    (365
    )
    
    
    (344
    )
    
    
    (407
    )Profit on continuing operations before tax
    
    
    
    
    
    
    1,094
    
    
    
    864
    
    
    
    428Tax on profit on continuing operations
    
    
    9
    
    
    
    (275
    )
    
    
    (179
    )
    
    
    (115
    )Profit for the year from continuing operations
    
    
    
    
    
    
    819
    
    
    
    685
    
    
    
    313Loss for the year from discontinued operations
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    (245
    )Profit for the year
    
    
    
    
    
    
    819
    
    
    
    685
    
    
    
    68Attributable to:Equity holders of the parent
    
    
    
    
    
    
    811
    
    
    
    685
    
    
    
    68Minority interest
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    




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##### Table of Contents



Financial Statements
 
 Consolidated Balance Sheet
  2008
    
    
    2007Notes
    
    
    £m
    
    
    £mAssetsCash and balances at central banks
    
    
    12
    
    
    
    2,464
    
    
    
    1,038Trading assets
    
    
    13
    
    
    
    25,486
    
    
    
    56,427Derivative financial instruments
    
    
    14
    
    
    
    32,281
    
    
    
    9,951Financial assets designated at fair value
    
    
    15
    
    
    
    11,314
    
    
    
    11,783Loans and advances to banks
    
    
    16
    
    
    
    24,301
    
    
    
    3,441Loans and advances to customers
    
    
    17
    
    
    
    129,023
    
    
    
    112,147Available for sale securities
    
    
    19
    
    
    
    1,005
    
    
    
    40Macro hedge of interest rate risk
    
    
    
    
    
    
    1,475
    
    
    
    217Investment in associated undertakings
    
    
    21
    
    
    
    735
    
    
    
    29Intangible assets
    
    
    22
    
    
    
    502
    
    
    
    90Property, plant and equipment
    
    
    23
    
    
    
    581
    
    
    
    528Operating lease assets
    
    
    24
    
    
    
    
    
    
    
    2,164Current tax assets
    
    
    
    
    
    
    195
    
    
    
    197Deferred tax assets
    
    
    25
    
    
    
    539
    
    
    
    665Other assets
    
    
    26
    
    
    
    1,841
    
    
    
    906Total assets
    
    
    
    
    
    
    231,742
    
    
    
    199,623LiabilitiesDeposits by banks
    
    
    27
    
    
    
    3,337
    
    
    
    7,923Deposits by customers
    
    
    28
    
    
    
    99,246
    
    
    
    69,650Derivative financial instruments
    
    
    14
    
    
    
    26,309
    
    
    
    9,931Trading liabilities
    
    
    29
    
    
    
    40,738
    
    
    
    54,916Financial liabilities designated at fair value
    
    
    30
    
    
    
    4,945
    
    
    
    7,538Debt securities in issue
    
    
    31
    
    
    
    41,178
    
    
    
    35,712Other borrowed funds
    
    
    32
    
    
    
    2,076
    
    
    
    1,419Subordinated liabilities
    
    
    33
    
    
    
    5,826
    
    
    
    4,732Other liabilities
    
    
    34
    
    
    
    1,770
    
    
    
    2,337Provisions
    
    
    35
    
    
    
    107
    
    
    
    131Current tax liabilities
    
    
    
    
    
    
    517
    
    
    
    369Deferred tax liabilities
    
    
    25
    
    
    
    86
    
    
    
    544Retirement benefit obligations
    
    
    36
    
    
    
    796
    
    
    
    979Total liabilities
    
    
    
    
    
    
    226,931
    
    
    
    196,181EquityShare capital
    
    
    38
    
    
    
    1,148
    
    
    
    148Share premium account
    
    
    38
    
    
    
    1,857
    
    
    
    1,857Retained earnings
    
    
    39
    
    
    
    1,700
    
    
    
    1,3394,705
    
    
    
    3,344Minority interest
    
    
    39
    
    
    
    106
    
    
    
    98Total shareholders equity
    
    
    
    
    
    
    4,811
    
    
    
    3,442Total liabilities and equity
    
    
    
    
    
    
    231,742
    
    
    
    199,623




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##### Table of Contents



Financial Statements
 
 Consolidated Statement of Recognised Income and Expense
  2008
    
    
    2007
    
    
    2006Notes
    
    
    £m
    
    
    £m
    
    
    £mActuarial (losses)/gains on defined benefit pension plans
    
    
    36
    
    
    
    (44
    )
    
    
    (113
    )
    
    
    219Gains on available for sale securities
    
    
    19
    
    
    
    8
    
    
    
    19
    
    
    
    1Gains on available for sale securities transferred to profit or loss on sale
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    Exchange differences on translation of foreign operations
    
    
    
    
    
    
    28
    
    
    
    (1
    )
    
    
    (9
    )Tax on items taken directly to equity
    
    
    
    
    
    
    8
    
    
    
    9
    
    
    
    (66
    )Net gain/(loss) recognised directly in equity
    
    
    
    
    
    
    
    
    
    
    (87
    )
    
    
    145Profit for the year
    
    
    
    
    
    
    819
    
    
    
    685
    
    
    
    68Total recognised income and expense for the year
    
    
    
    
    
    
    819
    
    
    
    598
    
    
    
    213Attributable to:Equity holders of the parent
    
    
    
    
    
    
    811
    
    
    
    598
    
    
    
    213Minority interest
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
 
 Consolidated Cash Flow Statement
  2008
    
    
    2007(1)
    
    
    2006(1)Notes
    
    
    £m
    
    
    £m
    
    
    £mNet cash flow (used in)/from operating activitiesProfit for the year
    
    
    
    
    
    
    819
    
    
    
    685
    
    
    
    68Adjustments for:Non cash items included in net profit
    
    
    
    
    
    
    1,297
    
    
    
    1,307
    
    
    
    1,125Change in operating assets
    
    
    
    
    
    
    (40,978
    )
    
    
    (12,411
    )
    
    
    (9,636
    )Change in operating liabilities
    
    
    
    
    
    
    8,135
    
    
    
    696
    
    
    
    10,130Income taxes received/(paid)
    
    
    
    
    
    
    43
    
    
    
    (5
    )
    
    
    (60
    )Effects of exchange rate differences
    
    
    
    
    
    
    8,569
    
    
    
    396
    
    
    
    (1,196
    )Net cash flow (used in)/from operating activities
    
    
    40
    
    
    
    (22,115
    )
    
    
    (9,332
    )
    
    
    431Net cash flows from/(used in) investing activitiesAcquisition of businesses, net of cash acquired
    
    
    40
    
    
    
    18,001
    
    
    
    
    
    
    
    Dividends received from associates
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    3Investment in associates
    
    
    
    
    
    
    (708
    )
    
    
    (8
    )
    
    
    (1
    )Disposal of subsidiaries, net of cash disposed
    
    
    40
    
    
    
    1,605
    
    
    
    5
    
    
    
    (365
    )Disposal of non-controlling interest in subsidiaries
    
    
    
    
    
    
    
    
    
    
    203
    
    
    
    Purchase of tangible and intangible fixed assets
    
    
    
    
    
    
    (278
    )
    
    
    (407
    )
    
    
    (230
    )Proceeds from sale of tangible and intangible fixed assets
    
    
    
    
    
    
    15
    
    
    
    8
    
    
    
    5Purchase of non-trading securities
    
    
    
    
    
    
    (1,222
    )
    
    
    
    
    
    
    (9
    )Proceeds from sale of non-trading securities
    
    
    
    
    
    
    290
    
    
    
    3
    
    
    
    Net cash flow from/(used in) investing activities
    
    
    
    
    
    
    17,705
    
    
    
    (196
    )
    
    
    (597
    )Net cash flow (used in)/from financing activitiesIssue of ordinary share capital
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    Issue of loan capital
    
    
    
    
    
    
    
    
    
    
    13,363
    
    
    
    10,778Repayment of loan capital
    
    
    
    
    
    
    (7,787
    )
    
    
    (8,587
    )
    
    
    (8,813
    )Dividends paid
    
    
    
    
    
    
    (595
    )
    
    
    
    
    
    
    (207
    )Net cash flow (used in)/from financing activities
    
    
    
    
    
    
    (7,382
    )
    
    
    4,776
    
    
    
    1,758Net (decrease)/increase in cash and cash equivalents
    
    
    
    
    
    
    (11,792
    )
    
    
    (4,752
    )
    
    
    1,592Cash and cash equivalents at beginning of the year
    
    
    
    
    
    
    34,056
    
    
    
    39,082
    
    
    
    40,359Effects of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    3,042
    
    
    
    (274
    )
    
    
    (2,869
    )Cash and cash equivalents at the end of the year
    
    
    40
    
    
    
    25,306
    
    
    
    34,056
    
    
    
    39,082
 (1)
    
    Amended for the change in accounting policy for cash equivalents described in the
Accounting Policies on page 85.




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##### Table of Contents



Financial Statements
 
 Company Balance Sheet
  2008
    
    
    2007Notes
    
    
    £m
    
    
    £mAssetsCash and balances at central banks
    
    
    12
    
    
    
    2,456
    
    
    
    1,032Derivative financial instruments
    
    
    14
    
    
    
    2,735
    
    
    
    689Financial assets designated at fair value
    
    
    15
    
    
    
    47,525
    
    
    
    7,500Loans and advances to banks
    
    
    16
    
    
    
    116,486
    
    
    
    40,685Loans and advances to customers
    
    
    17
    
    
    
    123,319
    
    
    
    110,976Available for sale securities
    
    
    19
    
    
    
    25
    
    
    
    28Investment in associated undertakings
    
    
    21
    
    
    
    741
    
    
    
    33Investment in subsidiary undertakings
    
    
    20
    
    
    
    5,222
    
    
    
    5,053Intangible assets
    
    
    22
    
    
    
    406
    
    
    
    Property, plant and equipment
    
    
    23
    
    
    
    569
    
    
    
    501Current tax asset
    
    
    
    
    
    
    194
    
    
    
    190Deferred tax assets
    
    
    25
    
    
    
    458
    
    
    
    620Other assets
    
    
    26
    
    
    
    990
    
    
    
    686Total assets
    
    
    
    
    
    
    301,126
    
    
    
    167,993LiabilitiesDeposits by banks
    
    
    27
    
    
    
    124,846
    
    
    
    59,798Deposits by customers
    
    
    28
    
    
    
    155,466
    
    
    
    95,687Derivative financial instruments
    
    
    14
    
    
    
    5,393
    
    
    
    1,051Trading liabilities
    
    
    29
    
    
    
    739
    
    
    
    Debt securities in issue
    
    
    31
    
    
    
    
    
    
    
    Other borrowed funds
    
    
    32
    
    
    
    905
    
    
    
    834Subordinated liabilities
    
    
    33
    
    
    
    7,030
    
    
    
    5,352Macro hedge of interest rate risk
    
    
    
    
    
    
    
    
    
    
    3Other liabilities
    
    
    34
    
    
    
    1,283
    
    
    
    1,452Provisions
    
    
    35
    
    
    
    99
    
    
    
    100Current tax liabilities
    
    
    
    
    
    
    128
    
    
    
    137Deferred tax liabilities
    
    
    25
    
    
    
    6
    
    
    
    6Retirement benefit obligations
    
    
    36
    
    
    
    797
    
    
    
    982Total liabilities
    
    
    
    
    
    
    296,692
    
    
    
    165,402EquityShare capital
    
    
    38
    
    
    
    1,148
    
    
    
    148Share premium account
    
    
    38
    
    
    
    1,857
    
    
    
    1,857Retained earnings
    
    
    39
    
    
    
    1,429
    
    
    
    586Total shareholders equity
    
    
    
    
    
    
    4,434
    
    
    
    2,591Total liabilities and equity
    
    
    
    
    
    
    301,126
    
    
    
    167,993




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##### Table of Contents



Financial Statements
 
 Company Statement of Recognised Income and Expense
  2008
    
    
    2007
    
    
    2006Notes
    
    
    £m
    
    
    £m
    
    
    £mActuarial (losses)/gains on defined benefit pension plans
    
    
    36
    
    
    
    (43
    )
    
    
    (116
    )
    
    
    180(Losses)/gains on available for sale securities
    
    
    19
    
    
    
    (4
    )
    
    
    18
    
    
    
    Gains on available for sale securities transferred to profit or loss on sale
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    Tax on items taken directly to equity
    
    
    
    
    
    
    12
    
    
    
    10
    
    
    
    (54
    )Net (loss)/gain recognised directly in equity
    
    
    
    
    
    
    (35
    )
    
    
    (89
    )
    
    
    126Profit/(loss) for the year
    
    
    
    
    
    
    1,328
    
    
    
    351
    
    
    
    (128
    )1,293
    
    
    
    262
    
    
    
    (2
    )Attributable to:Equity holders of the parent
    
    
    
    
    
    
    1,293
    
    
    
    262
    
    
    
    (2
    )
 
 Company Cash Flow Statement
  2008
    
    
    2007(1)
    
    
    2006(1)Notes
    
    
    £m
    
    
    £m
    
    
    £mNet cash flow from/(used in) operating activitiesProfit/(loss) for the year
    
    
    
    
    
    
    1,328
    
    
    
    351
    
    
    
    (128
    )Adjustments for:Non cash items included in net profit
    
    
    
    
    
    
    2,038
    
    
    
    446
    
    
    
    251Change in operating assets
    
    
    
    
    
    
    (80,636
    )
    
    
    (8,761
    )
    
    
    (19,662
    )Change in operating liabilities
    
    
    
    
    
    
    128,109
    
    
    
    13,865
    
    
    
    13,733Income taxes received/(paid)
    
    
    
    
    
    
    80
    
    
    
    48
    
    
    
    56Effects of exchange rate differences
    
    
    
    
    
    
    897
    
    
    
    
    
    
    
    (108
    )Net cash flow from/(used in) operating activities
    
    
    40
    
    
    
    51,816
    
    
    
    5,949
    
    
    
    (5,858
    )Cash flows (used in)/from investing activitiesIncrease in investment in subsidiaries
    
    
    
    
    
    
    (598
    )
    
    
    (418
    )
    
    
    (54
    )Investment in associates
    
    
    
    
    
    
    (708
    )
    
    
    (8
    )
    
    
    (1
    )Disposal of subsidiaries, net of cash disposed
    
    
    
    
    
    
    111
    
    
    
    415
    
    
    
    3,751Disposal of non-controlling interest in subsidiary
    
    
    
    
    
    
    
    
    
    
    203
    
    
    
    Pre-acquisition dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197Purchase of tangible and intangible fixed assets
    
    
    
    
    
    
    (174
    )
    
    
    (181
    )
    
    
    (179
    )Proceeds from sale of tangible and intangible fixed assets
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    3Purchase of non-trading securities
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Proceeds from sale and redemption of non-dealing securities
    
    
    
    
    
    
    8
    
    
    
    3
    
    
    
    269Net cash flow (used in)/from investing activities
    
    
    
    
    
    
    (1,359
    )
    
    
    14
    
    
    
    3,977Cash flows from/(used in) financing activitiesIssue of ordinary share capital
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    Issue of loan capital
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    Repayment of loan capital
    
    
    
    
    
    
    (253
    )
    
    
    (641
    )
    
    
    (1,032
    )Dividends paid
    
    
    
    
    
    
    (595
    )
    
    
    
    
    
    
    (207
    )Net cash flows from/(used in) financing activities
    
    
    
    
    
    
    152
    
    
    
    (576
    )
    
    
    (1,239
    )Net increase/(decrease) in cash and cash equivalents
    
    
    
    
    
    
    50,609
    
    
    
    5,387
    
    
    
    (3,120
    )Cash and cash equivalents at beginning of the year
    
    
    
    
    
    
    10,594
    
    
    
    5,207
    
    
    
    8,327Effects of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents at the end of the year
    
    
    40
    
    
    
    61,203
    
    
    
    10,594
    
    
    
    5,207
 (1)
    
    Amended for the change in accounting policy for cash equivalents described in the
Accounting Policies on page 85.




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##### Table of Contents



Financial Statements
 
 Accounting Policies
 International Financial Reporting Standards
   Recent developments
  a)
    
    IFRIC 14 IAS 19  The Asset Ceiling  On 5 July 2007 IFRIC issued IFRIC 14 which clarifies
the effect of minimum funding requirements on the recognition of a defined benefit asset. The
adoption of IFRIC 14 did not have a material impact on the Groups profit or loss or financial
position.b)
    
    IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial
Instruments: Disclosures  On 13 October 2008, the IASB issued amendments to IAS 39 and IFRS
7 regarding the reclassification of financial instruments. The changes to IAS 39 permit an
entity to reclassify, in limited circumstances, certain non-derivative financial assets out of
the fair value through profit and loss and available-for-sale categories into loans and
receivables, available-for-sale and held to maturity. In addition, the amendments to IFRS
7 require expanded disclosures about these assets. The amendments became effective on 1 July
2008. The adoption of the amendments to IAS 39 and IFRS 7 had no impact on the Groups profit
or loss or financial position, because the Group did not reclassify any of its financial
instruments in 2008.
  Future developments
  a)
    
    IAS 23 Borrowing Costs  On 29 March 2007, the IASB issued an amendment to IAS 23
Borrowing costs which removes the option to expense borrowing costs incurred during the
acquisition, construction or production of a qualifying asset. The Group does not expect the
adoption of the amendment to IAS 23 to have a material impact on the Groups profit or loss or
financial position. The amendment to IAS 23 is effective for periods beginning on or after 1
January 2009.b)
    
    IAS 1 Presentation of Financial Statements  On 6 September 2007, the IASB issued an
amendment to IAS 1 Presentation of Financial Statements which changes the way in which
non-owner changes in equity are required to be presented. It also changes the titles of
primary financial statements as they will be referred to in IFRS but does not require that
these be renamed in an entitys financial statements. The Group does not expect the adoption
of the amendment to IAS 1 to have an impact on the financial statements. The amendment to IAS
1 is effective for periods beginning on or after 1 January 2009.c)
    
    IFRS 3 Business Combinations  On 10 January 2008, the IASB issued an amendment to IFRS 3
Business Combinations which clarifies and changes certain elements of accounting for a
business combination, including measurement of contingent consideration, step acquisition and
intangible assets and also widens the scope of this standard. There are also associated
amendments to IAS 27, IAS 28 and IAS 31. The amendment to IFRS 3 is effective for periods
beginning on or after 1 July 2009.
 Basis of preparation




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##### Table of Contents



Financial Statements
 Accounting Policies
 Consolidation
       Foreign currency translation
     Revenue recognition




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##### Table of Contents



Financial Statements
 Accounting Policies
          Pensions and other post retirement benefits




---



##### Table of Contents



Financial Statements
 Accounting Policies
 Share-based payments
    Goodwill and other intangible assets
    Property, plant and equipment




---



##### Table of Contents



Financial Statements
 Accounting Policies
  Owner-occupied properties
    
    Not exceeding 50 yearsOffice fixtures and equipment
    
    3 to 10 yearsComputer software
    
    3 to 7 years
  Financial assets




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##### Table of Contents



Financial Statements
 Accounting Policies
   Regular way purchases of financial assets
  Offsetting financial assets and liabilities
  Sale and repurchase agreements (including stock borrowing and lending)
  Derivative financial instruments
    Hedge accounting




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##### Table of Contents



Financial Statements
 Accounting Policies
    Securitisation transactions
  Impairment of financial assets




---



##### Table of Contents



Financial Statements
 Accounting Policies
  The emergence period
        Impairment of non-financial assets
   Leases




---



##### Table of Contents



Financial Statements
 Accounting Policies
   Income taxes, including deferred taxes
      Cash and cash equivalents
   Financial liabilities




---



##### Table of Contents



Financial Statements
 Accounting Policies
  Borrowings
   Share capital
  Provisions
    Financial guarantee contracts
  Dividends
  Critical accounting policies and areas of significant management judgement
   (a) Provisions for loans and advances




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##### Table of Contents



Financial Statements
 Accounting Policies
    (b) Valuation of financial instruments
  Initial measurement
  Subsequent measurement
 Fair value hierarchy




---



##### Table of Contents



Financial Statements
 Accounting Policies
  Level 1:
    
    Unadjusted quoted prices for identical assets or liabilities in
an active market that the Group has the ability to access at the
measurement date. Level 1 measurements include equity securities,
debt securities, exchange traded derivatives and short positions
in securities.Level 2:
    
    Quoted prices in markets that are not active, quoted prices for
similar assets or liabilities, inputs other than quoted market
prices for the asset or liability that are observable either
directly or indirectly for substantially the full term, and
inputs to valuation techniques that are derived principally from
or corroborated by observable market data through correlation or
other statistical means for substantially the full term of the
asset or liability. Level 2 measurements include loans and
advances to banks, loans and advances to customers, debt
securities, equity securities, exchange rate derivatives,
interest rate derivatives, equity and credit derivatives,
deposits by banks, deposits by customers, and debt securities in
issue.Level 3:
    
    Inputs to the pricing or valuation techniques that are
significant to the overall fair value measurement of the asset or
liability are unobservable. Level 3 measurements include equity
securities, exchange rate derivative, equity and credit
derivatives, loans and advances to customers, debt securities,
and debt securities in issue.
    Financial instruments valued using observable market prices
  Financial instruments valued using a valuation technique




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##### Table of Contents



Financial Statements
 Accounting Policies
  At 31 December 2008
 Internal models based onQuoted prices in
    
    
    market
    
    
    other than market
    
    
    
    
    
    
    
    
    
    
    Valuationactive markets
    
    
    observable data
    
    
    observable data
    
    
    
    
    
    
    Total
    
    
    techniqueBalance sheet category
    
    
    
    £m
    
    
    %
    
    
    £m
    
    
    %
    
    
    £m
    
    
    %
    
    
    £m
    
    
    %AssetsTrading assets
    
    Loans and advances to banks
    
    
    
    
    
    
    
    
    
    
    4,947
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    4,947
    
    
    
    7
    
    
    
    ALoans and advances to
customers
    
    
    
    
    
    
    
    
    
    
    532
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    532
    
    
    
    1
    
    
    
    ADebt securities
    
    
    16,801
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,801
    
    
    
    25
    
    
    
    -Equity securities
    
    
    671
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    708
    
    
    
    1
    
    
    
    BDerivative assets
    
    Exchange rate contracts
    
    
    
    
    
    
    
    
    
    
    8,598
    
    
    
    13
    
    
    
    5
    
    
    
    
    
    
    
    8,603
    
    
    
    13
    
    
    
    AInterest rate contracts
    
    
    232
    
    
    
    
    
    
    
    20,672
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    20,904
    
    
    
    31
    
    
    
    A & CEquity & credit contracts
    
    
    843
    
    
    
    1
    
    
    
    1,782
    
    
    
    3
    
    
    
    149
    
    
    
    
    
    
    
    2,774
    
    
    
    4
    
    
    
    BFinancial assets at FVTPL
    
    Loans and advances to
customers
    
    
    
    
    
    
    
    
    
    
    6,405
    
    
    
    9
    
    
    
    282
    
    
    
    1
    
    
    
    6,687
    
    
    
    10
    
    
    
    ADebt securities
    
    
    
    
    
    
    
    
    
    
    280
    
    
    
    1
    
    
    
    4,347
    
    
    
    6
    
    
    
    4,627
    
    
    
    7
    
    
    
    AAvailable-for-sale financial
    
    Debt securities
    
    
    970
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    970
    
    
    
    1
    
    
    
    -Assets
    
    Equity securities
    
    
    10
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    BTotal assets at fair value
    
    
    
    
    19,527
    
    
    
    28
    
    
    
    43,241
    
    
    
    65
    
    
    
    4,820
    
    
    
    7
    
    
    
    67,588
    
    
    
    100LiabilitiesTrading liabilities
    
    Deposits by banks
    
    
    
    
    
    
    
    
    
    
    34,341
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    34,341
    
    
    
    48
    
    
    
    ADeposits by customers
    
    
    
    
    
    
    
    
    
    
    4,622
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    4,622
    
    
    
    6
    
    
    
    AShort positions
    
    
    751
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    751
    
    
    
    1
    
    
    
    -Debt securities in issue
    
    
    
    
    
    
    
    
    
    
    1,024
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1,024
    
    
    
    1
    
    
    
    ADerivative liabilities
    
    Exchange rate contracts
    
    
    
    
    
    
    
    
    
    
    1,324
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1,324
    
    
    
    2
    
    
    
    AInterest rate contracts
    
    
    
    
    
    
    
    
    
    
    20,576
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    20,576
    
    
    
    29
    
    
    
    A & CEquity & credit contracts
    
    
    803
    
    
    
    1
    
    
    
    3,437
    
    
    
    5
    
    
    
    169
    
    
    
    
    
    
    
    4,409
    
    
    
    6
    
    
    
    BFinancial liabilities at FVTPL
    
    Debt securities in issue
    
    
    
    
    
    
    
    
    
    
    4,698
    
    
    
    6
    
    
    
    247
    
    
    
    
    
    
    
    4,945
    
    
    
    7
    
    
    
    ATotal liabilities at fair value
    
    
    
    
    1,554
    
    
    
    2
    
    
    
    70,022
    
    
    
    97
    
    
    
    416
    
    
    
    1
    
    
    
    71,992
    
    
    
    100
 At 31 December 2007
 Internal models based onQuoted prices in
    
    
    market
    
    
    other than market
    
    
    
    
    
    
    
    
    
    
    Valuationactive markets
    
    
    observable data
    
    
    observable data
    
    
    
    
    
    
    Total
    
    
    techniqueBalance sheet category
    
    
    
    £m
    
    
    %
    
    
    £m
    
    
    %
    
    
    £m
    
    
    %
    
    
    £m
    
    
    %AssetsTrading assets
    
    Loans and advances to banks
    
    
    
    
    
    
    
    
    
    
    8,847
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    8,847
    
    
    
    12
    
    
    
    ALoans and advances to
customers
    
    
    
    
    
    
    
    
    
    
    17,255
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    17,255
    
    
    
    22
    
    
    
    ADebt securities
    
    
    19,118
    
    
    
    24
    
    
    
    9,713
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    28,831
    
    
    
    37
    
    
    
    AEquity securities
    
    
    1,494
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,494
    
    
    
    2
    
    
    
    Derivative assets
    
    Exchange rate contracts
    
    
    
    
    
    
    
    
    
    
    1,072
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1,072
    
    
    
    1
    
    
    
    AInterest rate contracts
    
    
    88
    
    
    
    
    
    
    
    6,368
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    6,456
    
    
    
    8
    
    
    
    A & CEquity & credit contracts
    
    
    523
    
    
    
    1
    
    
    
    1,782
    
    
    
    2
    
    
    
    118
    
    
    
    
    
    
    
    2,423
    
    
    
    3
    
    
    
    BFinancial assets at FVTPL
    
    Loans and advances to
customers
    
    
    
    
    
    
    
    
    
    
    5,575
    
    
    
    7
    
    
    
    126
    
    
    
    
    
    
    
    5,701
    
    
    
    7
    
    
    
    ADebt securities
    
    
    
    
    
    
    
    
    
    
    1,693
    
    
    
    2
    
    
    
    4,389
    
    
    
    6
    
    
    
    6,082
    
    
    
    8
    
    
    
    AAvailable-for-sale financial
    
    Debt securities
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    AAssets
    
    Equity securities
    
    
    12
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    BTotal assets at fair value
    
    
    
    
    21,235
    
    
    
    27
    
    
    
    52,333
    
    
    
    67
    
    
    
    4,633
    
    
    
    6
    
    
    
    78,201
    
    
    
    100LiabilitiesTrading liabilities
    
    Deposits by banks
    
    
    
    
    
    
    
    
    
    
    19,632
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    19,632
    
    
    
    27
    
    
    
    ADeposits by customers
    
    
    
    
    
    
    
    
    
    
    20,498
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    20,498
    
    
    
    28
    
    
    
    AShort positions
    
    
    2,252
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,252
    
    
    
    3
    
    
    
    Debt securities in issue
    
    
    
    
    
    
    
    
    
    
    12,534
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    12,534
    
    
    
    17
    
    
    
    ADerivative liabilities
    
    Exchange rate contracts
    
    
    
    
    
    
    
    
    
    
    1,083
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1,083
    
    
    
    1
    
    
    
    AInterest rate contracts
    
    
    
    
    
    
    
    
    
    
    6,626
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    6,626
    
    
    
    9
    
    
    
    A & CEquity & credit contracts
    
    
    216
    
    
    
    1
    
    
    
    1,858
    
    
    
    3
    
    
    
    148
    
    
    
    
    
    
    
    2,222
    
    
    
    4
    
    
    
    BFinancial liabilities at FVTPL
    
    Debt securities in issue
    
    
    
    
    
    
    
    
    
    
    7,262
    
    
    
    10
    
    
    
    276
    
    
    
    1
    
    
    
    7,538
    
    
    
    11
    
    
    
    ATotal liabilities at fair value
    
    
    
    
    2,468
    
    
    
    4
    
    
    
    69,493
    
    
    
    95
    
    
    
    424
    
    
    
    1
    
    
    
    72,385
    
    
    
    100




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##### Table of Contents



Financial Statements
 Accounting Policies
 Valuation techniques
  A
    
    In the valuation of financial instruments requiring static hedging
(for example interest rate and currency derivatives) and in the
valuation of loans and advances and deposits, the present value
method is used. Expected future cash flows are discounted using the
interest rate curves of the applicable currencies. The interest rate
curves are generally observable market data and reference yield curves
derived from quoted interest rates in appropriate time bandings, which
match the timings of the cashflows and maturities of the instruments.B
    
    In the valuation of equity financial instrument requiring dynamic
hedging (principally equity securities, options and other structured
instruments), proprietary stochastic volatility models are used.
These types of models are widely accepted in the financial services
industry. Observable market inputs are used in these models to
generate variables such as the bid-offer spread, foreign currency
exchange rates, credit risk, volatility, correlation between indices
and market liquidity as appropriate. In limited circumstances, other
inputs may be used in these models that are based on data other than
observable market data, such as the Halifaxs UK House Price Index
(HPI) volatility, HPI forward growth, HPI spot rate, and mortality.C
    
    In the valuation of financial instruments exposed to interest rate
risk that require either static or dynamic hedging (such as interest
rate futures, caps and floors, and options), the present value method
(futures), Blacks model (caps/floors) and the Markov functional
model (Bermudan options) are used. These types of models are widely
accepted in the financial services industry. The significant inputs
used in these models are observable market data, including appropriate
interest rate curves, volatilities, correlations and exchange rates.
In limited circumstances, other inputs may be used in these models
that are based on data other than observable market data, such as the
Halifaxs UK House Price Index (HPI) volatility, HPI forward growth,
HPI spot rate, mortality, and the specific credit spread for that
instrument.




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##### Table of Contents



Financial Statements
 Accounting Policies
   Internal models based on information other than market data
  Balance sheet value
    
    Amount recognised in income31
    
    31
    
    31
    
    31December
    
    December
    
    December
    
    December2008
    
    2007
    
    2008
    
    2007Instrument
    
    Valuation technique
    
    £m
    
    £m
    
    £m
    
    £m1. Trading assets
- Equity securities
    
    These unit trusts
are valued using
Net Asset Values,
which are regular
third party asset
valuations, with an
adjustment for the
estimated discount
to asset value
inherent in current
similar market
prices, reflecting
the specific asset
characteristics and
degree of leverage
in each unit trust.
    
    
    
    37
    
    
    
    
    16

    
    2. Derivative
assets- Exchange
rate contracts
    
    These derivatives
are valued using a
valuation model
with interest
rates, foreign
exchange rates and
long-dated foreign
exchange volatility
as inputs to derive
valuations.
    
    
    5

    
    
    
    
    5

    
    
    43. Derivative
assets- Equity and
credit contracts
    
    These property
derivatives are
valued using a
valuation model
with Halifaxs UK
House Price Index
(HPI) volatility,
HPI forward growth,
HPI spot rate, and
mortality as inputs
to derive
valuations.
    
    
    77

    
    
    98

    
    
    3

    
    
    174. Derivative
assets- Equity and
credit contracts
    
    These property
derivatives are
valued using a
valuation model
with HPI spot rate,
HPI forward growth,
and HPI volatility
as inputs to derive
valuations.
    
    
    72

    
    
    20

    
    
    91

    
    
    115. FVTPL- Loans
and advances to
customers
    
    These loans are
valued using a
valuation model
with HPI spot rate,
HPI forward growth,
HPI volatility, and
mortality as inputs
to derive
valuations.
    
    
    282

    
    
    126

    
    
    121

    
    
    126. FVTPL- Debt
securities
    
    These debt
securities are
valued using a
valuation model
with HPI spot rate,
HPI forward growth,
HPI volatility, and
mortality as inputs
to derive
valuations.
    
    
    265

    
    
    268

    
    
    1

    
    
    337. FVTPL- Debt
securities
    
    These prime
mortgage backed
securities (almost
all of which are
AAA rated, and
issued by Santander
entities) are
valued using a
valuation model
with reference to
the most relevant
generic curve from
a consensus pricing
service, and an
assumption with
respect to the
specific credit
spread for that
instrument as
inputs to derive
valuations.
    
    
    4,082

    
    
    4,121

    
    
    (328

    )
    
    (72)8. Derivative
liabilities -
Equity and
credit
contracts
    
    These derivatives
are valued using a
valuation model
with HPI spot rate,
HPI forward growth,
and HPI volatility
as inputs to derive
valuations.
    
    
    (169
    )
    
    
    (148
    )
    
    
    (94
    )
    
    
    (14
    )9. FVTPL- Debt
securities in issue
    
    These debt
securities in issue
are valued using a
valuation model
with interest
rates, foreign
exchange rates and
long-dated foreign
exchange volatility
as inputs to derive
valuations.
    
    
    (247

    )
    
    (276

    )
    
    
    (5
    )
    
    (4
    )Total assets
    
    
    
    
    4,820

    
    
    4,633

    
    
    

    
    Total liabilities
    
    
    
    
    (416
    )

    
    (424
    )

    
    

    
    Total income/(expense)
    
    
    
    
    

    
    
    
    
    (190
    )

    
    (13
    )
  91




---



##### Table of Contents



Financial Statements
 Accounting Policies
 Financial instrument assets and liabilities at 31 December 2008
    Gains and losses for the year ended 31 December 2008
     Gains and losses for the year ended 31 December 2007
    Sensitivity analysis
  2008
    
    
    
    
    
    Impact on profit or loss before tax for the period for instrument number:1
    
    
    3
    
    
    4
    
    
    5
    
    
    6
    
    
    7
    
    
    8Input
    
    Assumed change
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDiscount to asset value
    
    
    10
    %
    
    
    7
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aHPI forward growth
    
    
    1
    %
    
    
    n/a
    
    
    
    16
    
    
    
    
    
    
    
    39
    
    
    
    13
    
    
    
    n/a
    
    
    
    (11
    )HPI volatility
    
    
    1
    %
    
    
    n/a
    
    
    
    1
    
    
    
    
    
    
    
    (6
    )
    
    

    
    
    
    
    n/a
    
    
    
    (1
    )Mortality
    
    1 year
    
    
    
    n/a
    
    
    
    
    
    
    
    n/a
    
    
    
    (6
    )
    
    
    
    
    
    
    n/a
    
    
    
    n/aCredit spread
    
    100 basis points
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    90
    
    
    
    n/a
 2007
    
    
    
    
    
    Impact on profit or loss before tax for the year for instrument number:1
    
    
    3
    
    
    4
    
    
    5
    
    
    6
    
    
    7
    
    
    8Input
    
    Assumed change
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mHPI forward growth
    
    
    1
    %
    
    
    n/a
    
    
    
    12
    
    
    
    
    
    
    
    15
    
    
    
    14
    
    
    
    n/a
    
    
    
    (12
    )HPI volatility
    
    
    1
    %
    
    
    n/a
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    n/a
    
    
    
    Mortality
    
    1 year
    
    
    
    n/a
    
    
    
    (1
    )
    
    
    n/a
    
    
    
    (2

    )
    
    
    
    
    
    
    n/a
    
    
    
    n/aCredit spread
    
    100 basis points
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    110
    
    
    
    n/a
  92




---



##### Table of Contents



Financial Statements
 Accounting Policies
 Day One profits
  2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mAt 1 January
    
    
    45
    
    
    
    18
    
    
    
    32Additions
    
    
    12
    
    
    
    27
    
    
    
    Releases
    
    
    (2
    )
    
    
    
    
    
    
    (14
    )At 31 December
    
    
    55
    
    
    
    45
    
    
    
    18
    (c) Provisions for misselling
     93




---



##### Table of Contents



Financial Statements
 Accounting Policies
  (d) Pensions
     94




---



##### Table of Contents



Financial Statements
 
 Notes to the Financial Statements
 1. Segments
           >
    
    Reorganisation and other costs- Comprise implementation costs in
relation to the strategic change cost reduction projects, as well as
certain remediation administration expenses and credit provisions.
Management needs to understand the underlying drivers of the cost
base that will remain after these exercises are complete, and does
not want this view to be clouded by these costs, which are managed
independently.>
    
    Depreciation of operating lease assets- The Porterbrook operating
lease businesses that were sold in 2008 had been managed as financing
businesses and, therefore, management needed to see the margin earned
on the businesses. Residual value risk was separately managed. As a
result the depreciation was netted against the related income.>
    
    Profit on part sale of PFS subsidiaries- These profits are excluded
from the results to allow management to understand the underlying
performance of the business. In 2008, the profit on the sale of the
Porterbrook businesses was excluded. In 2007, the profit on the sale
of 49% of James Hay, Cater Allen and Abbey Sharedealing, and small
recoveries on certain other transactions were excluded. In 2006, the
profit on the sale of the Asset Management businesses was similarly
excluded.>
    
    Hedging and certain other mark-to-market variances- The Balance
Sheet and Income Statement are subject to mark-to-market volatility
including that arising from the accounting for elements of
derivatives deemed under IFRS rules to be ineffective as hedges.
Volatility also arises on certain assets previously managed on a fair
value basis, and hence classified as fair value through profit or
loss under IFRS, that are now managed on an accruals basis. Where
appropriate, such volatility is separately identified to enable
management to view the underlying performance of the business.>
    
    Capital and other charges- Principally comprise internal nominal
charges for capital invested in the Groups businesses. Management
implemented this charge to assess if capital is invested effectively.
    95




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 a) Segmental information
 Global
    
    
    
    
    
    
    
    
    
    Group
    
    
    SoldRetail
    
    
    Banking &
    
    
    Corporate
    
    
    Private
    
    
    Infra-
    
    
    Life
    
    
    
    
    
    
    Adjust-
    
    
    GroupBanking
    
    
    Markets
    
    
    Banking(1)
    
    
    Banking(1)
    
    
    structure
    
    
    Businesses
    
    
    Total
    
    
    ments
    
    
    Total2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income
    
    
    1,827
    
    
    
    
    
    
    
    (13
    )
    
    
    85
    
    
    
    (127
    )
    
    
    
    
    
    
    1,772
    
    
    
    
    
    
    
    1,772Non-interest income
    
    
    622
    
    
    
    326
    
    
    
    133
    
    
    
    35
    
    
    
    59
    
    
    
    
    
    
    
    1,175
    
    
    
    57
    
    
    
    1,232Total trading income
    
    
    2,449
    
    
    
    326
    
    
    
    120
    
    
    
    120
    
    
    
    (68
    )
    
    
    
    
    
    
    2,947
    
    
    
    57
    
    
    
    3,004Administration expenses
    
    
    (930
    )
    
    
    (104
    )
    
    
    (45
    )
    
    
    (58
    )
    
    
    (140
    )
    
    
    
    
    
    
    (1,277
    )
    
    
    (66
    )
    
    
    (1,343
    )Depreciation & amortisation
    
    
    (58
    )
    
    
    (3
    )
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    (63
    )
    
    
    (139
    )
    
    
    (202
    )Total trading expenses
    
    
    (988
    )
    
    
    (107
    )
    
    
    (45
    )
    
    
    (59
    )
    
    
    (141
    )
    
    
    
    
    
    
    (1,340
    )
    
    
    (205
    )
    
    
    (1,545
    )Impairment
losses on loans and advances
    
    
    (309
    )
    
    
    
    
    
    
    6
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (306
    )
    
    
    (42
    )
    
    
    (348
    )Provisions
for other  Liabilities and charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Trading profit/(loss) before tax
    
    
    1,152
    
    
    
    219
    
    
    
    81
    
    
    
    58
    
    
    
    (209
    )
    
    
    
    
    
    
    1,301
    
    
    
    (207
    )
    
    
    1,094Adjust for:Reorganisation & other costs
    
    
    (121
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42
    )
    
    
    
    
    
    
    (163
    )Profit on part sale of PFS subs
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Hedging and
certain other mark-to-market variances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    
    
    
    
    (84
    )Capital and other charges
    
    
    (103
    )
    
    
    
    
    
    
    (14
    )
    
    
    16
    
    
    
    101
    
    
    
    
    
    
    
    Profit/(loss) from continuing operations before tax
    
    
    928
    
    
    
    219
    
    
    
    107
    
    
    
    74
    
    
    
    (234
    )
    
    
    
    
    
    
    1,094Average number of staff
    
    
    13,475
    
    
    
    300
    
    
    
    226
    
    
    
    638
    
    
    
    190
    
    
    
    
    
    
    
    14,829
    
    
    
    
    
    
    
    14,829Total assets
    
    
    125,808
    
    
    
    52,590
    
    
    
    10,277
    
    
    
    179
    
    
    
    42,888
    
    
    
    
    
    
    
    231,742
    
    
    
    
    
    
    
    231,742
 
 (1)
    
    Formerly known as Wealth Management Non
    
    
    
    
    
    
    Depreciation
    
    
    Impairment
    
    
    Provisions for
    
    
    Profit oninterest
    
    
    Admin
    
    
    and
    
    
    losses on loans
    
    
    other liabilities
    
    
    continuing opsincome
    
    
    expenses
    
    
    amortisation
    
    
    and advances
    
    
    and charges
    
    
    before taxAdjustments comprise:
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mReorganisation and other costs
    
    
    (16
    )
    
    
    (66
    )
    
    
    (22
    )
    
    
    (42
    )
    
    
    (17
    )
    
    
    (163
    )Depreciation on operating lease assets
    
    
    117
    
    
    
    
    
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    
    Profit on part sale of PFS subsidiaries
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Hedging and certain other mark-to-market variances
    
    
    (84
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84
    )57
    
    
    
    (66
    )
    
    
    (139
    )
    
    
    (42
    )
    
    
    (17
    )
    
    
    (207
    )
  Global
    
    
    
    
    
    
    
    
    
    Group
    
    
    SoldRetail
    
    
    Banking &
    
    
    Corporate
    
    
    Private
    
    
    Infra-
    
    
    Life
    
    
    
    
    
    
    Adjust-
    
    
    GroupBanking
    
    
    Markets
    
    
    Banking
    
    
    Banking
    
    
    structure
    
    
    Businesses
    
    
    Total
    
    
    ments
    
    
    Total2007
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income
    
    
    1,623
    
    
    
    
    
    
    
    (31
    )
    
    
    70
    
    
    
    (163
    )
    
    
    
    
    
    
    1,499
    
    
    
    
    
    
    
    1,499Non-interest income
    
    
    635
    
    
    
    260
    
    
    
    132
    
    
    
    34
    
    
    
    55
    
    
    
    
    
    
    
    1,116
    
    
    
    167
    
    
    
    1,283Total trading income
    
    
    2,258
    
    
    
    260
    
    
    
    101
    
    
    
    104
    
    
    
    (108
    )
    
    
    
    
    
    
    2,615
    
    
    
    167
    
    
    
    2,782Administration expenses
    
    
    (937
    )
    
    
    (105
    )
    
    
    (30
    )
    
    
    (59
    )
    
    
    (105
    )
    
    
    
    
    
    
    (1,236
    )
    
    
    (133
    )
    
    
    (1,369
    )Depreciation & amortisation
    
    
    (59
    )
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )
    
    
    (142
    )
    
    
    (205
    )Total trading expenses
    
    
    (996
    )
    
    
    (107
    )
    
    
    (30
    )
    
    
    (61
    )
    
    
    (105
    )
    
    
    
    
    
    
    (1,299
    )
    
    
    (275
    )
    
    
    (1,574
    )Impairment
losses on loans and advances
    
    
    (239
    )
    
    
    
    
    
    
    29
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (212
    )
    
    
    (132
    )
    
    
    (344
    )Trading
profit/(loss) before tax
    
    
    1,023
    
    
    
    153
    
    
    
    100
    
    
    
    41
    
    
    
    (213
    )
    
    
    
    
    
    
    1,104
    
    
    
    (240
    )
    
    
    864Adjust for:Reorganisation & other costs
    
    
    (139
    )
    
    
    (6
    )
    
    
    
    
    
    
    (1
    )
    
    
    (132
    )
    
    
    
    
    
    
    (278
    )Profit on part sale of PFS subs
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    110Hedging and
certain other mark-to-market variances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    (72
    )Capital and other charges
    
    
    (89
    )
    
    
    
    
    
    
    (11
    )
    
    
    19
    
    
    
    81
    
    
    
    
    
    
    
    Profit/(loss) from continuing operations before tax
    
    
    795
    
    
    
    147
    
    
    
    94
    
    
    
    59
    
    
    
    (231
    )
    
    
    
    
    
    
    864Average number of staff
    
    
    13,269
    
    
    
    389
    
    
    
    166
    
    
    
    858
    
    
    
    221
    
    
    
    
    
    
    
    14,903
    
    
    
    
    
    
    
    14,903Total assets
    
    
    114,306
    
    
    
    54,029
    
    
    
    9,357
    
    
    
    211
    
    
    
    21,720
    
    
    
    
    
    
    
    199,623
    
    
    
    
    
    
    
    199,623
 96




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Impairment
    
    
    Provisions for
    
    
    Profit onNet
    
    
    Non
    
    
    
    
    
    
    Depreciation
    
    
    losses on
    
    
    other
    
    
    continuinginterest
    
    
    interest
    
    
    Admin
    
    
    and
    
    
    loans and
    
    
    liabilities and
    
    
    ops beforeincome
    
    
    income
    
    
    expenses
    
    
    amortisation
    
    
    advances
    
    
    charges
    
    
    taxAdjustments comprise:
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mReorganisation and other costs
    
    
    
    
    
    
    
    
    
    
    (133
    )
    
    
    (13
    )
    
    
    (132
    )
    
    
    
    
    
    
    (278
    )Depreciation on operating lease assets
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    (129
    )
    
    
    
    
    
    
    
    
    
    
    Profit on part sale of PFS subsidiaries
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110Hedging and certain other mark-to-market variances
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    
    167
    
    
    
    (133
    )
    
    
    (142
    )
    
    
    (132
    )
    
    
    
    
    
    
    (240
    )
 Global
    
    
    
    
    
    
    
    
    
    Group
    
    
    SoldRetail
    
    
    Banking &
    
    
    Corporate
    
    
    Private
    
    
    Infra-
    
    
    Life
    
    
    
    
    
    
    Adjust-
    
    
    GroupBanking
    
    
    Markets
    
    
    Banking
    
    
    Banking
    
    
    structure
    
    
    Businesses
    
    
    Total
    
    
    ments
    
    
    Total2006
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income
    
    
    1,466
    
    
    
    
    
    
    
    (46
    )
    
    
    62
    
    
    
    (146
    )
    
    
    
    
    
    
    1,336
    
    
    
    (108
    )
    
    
    1,228Non-interest income
    
    
    645
    
    
    
    240
    
    
    
    125
    
    
    
    32
    
    
    
    74
    
    
    
    
    
    
    
    1,116
    
    
    
    126
    
    
    
    1,242Total trading income
    
    
    2,111
    
    
    
    240
    
    
    
    79
    
    
    
    94
    
    
    
    (72
    )
    
    
    
    
    
    
    2,452
    
    
    
    18
    
    
    
    2,470Administration expenses
    
    
    (943
    )
    
    
    (92
    )
    
    
    (41
    )
    
    
    (55
    )
    
    
    (149
    )
    
    
    
    
    
    
    (1,280
    )
    
    
    (140
    )
    
    
    (1,420
    )Depreciation & amortisation
    
    
    (62
    )
    
    
    (1
    )
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    
    
    
    
    (69
    )
    
    
    (146
    )
    
    
    (215
    )Total trading expenses
    
    
    (1,005
    )
    
    
    (93
    )
    
    
    (41
    )
    
    
    (58
    )
    
    
    (152
    )
    
    
    
    
    
    
    (1,349
    )
    
    
    (286
    )
    
    
    (1,635
    )Impairment losses on loans and
advances
    
    
    (273
    )
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (251
    )
    
    
    (93
    )
    
    
    (344
    )Provisions for other
liabilities and charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (61
    )
    
    
    (63
    )Trading profit/(loss) before
tax
    
    
    833
    
    
    
    147
    
    
    
    65
    
    
    
    34
    
    
    
    (229
    )
    
    
    
    
    
    
    850
    
    
    
    (422
    )
    
    
    428Adjust for:Reorganisation & other costs
    
    
    (133
    )
    
    
    (9
    )
    
    
    
    
    
    
    (5
    )
    
    
    (151
    )
    
    
    
    
    
    
    (298
    )Profit on part sale of PFS subs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    41Hedging and certain other
mark-to-market variances
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    
    
    
    
    (45
    )Capital and other charges
    
    
    (44
    )
    
    
    
    
    
    
    (4
    )
    
    
    15
    
    
    
    (87
    )
    
    
    
    
    
    
    (120
    )Profit/(loss) from continuing
operations before tax
    
    
    648
    
    
    
    138
    
    
    
    61
    
    
    
    44
    
    
    
    (463
    )
    
    
    
    
    
    
    428Average number of staff
    
    
    15,077
    
    
    
    420
    
    
    
    178
    
    
    
    1,309
    
    
    
    356
    
    
    
    1,917
    
    
    
    19,257
    
    
    
    
    
    
    
    19,257Total assets
    
    
    105,214
    
    
    
    76,164
    
    
    
    7,495
    
    
    
    249
    
    
    
    2,683
    
    
    
    
    
    
    
    191,805
    
    
    
    
    
    
    
    191,805
 Impairment
    
    
    Provisions for
    
    
    Profit onNet
    
    
    Non
    
    
    
    
    
    
    Depreciation
    
    
    losses on
    
    
    other
    
    
    continuingInterest
    
    
    interest
    
    
    Admin
    
    
    and
    
    
    loans and
    
    
    liabilities and
    
    
    ops beforeincome
    
    
    income
    
    
    expenses
    
    
    amortisation
    
    
    advances
    
    
    charges
    
    
    taxAdjustments comprise:
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mReorganisation and other costs
    
    
    
    
    
    
    
    
    
    
    (128
    )
    
    
    (16
    )
    
    
    (93
    )
    
    
    (61
    )
    
    
    (298
    )Depreciation on operating lease assets
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    (130
    )
    
    
    
    
    
    
    
    
    
    
    Profit on part sale of PFS subsidiaries
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Hedging and certain other mark-to-market variances
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45
    )Capital and other charges
    
    
    (108
    )
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )(108
    )
    
    
    126
    
    
    
    (140
    )
    
    
    (146
    )
    
    
    (93
    )
    
    
    (61
    )
    
    
    (422
    )
 b) Geographical information
 2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mTotal operating incomeUnited Kingdom
    
    
    2,974
    
    
    
    2,678
    
    
    
    2,370Other
    
    
    30
    
    
    
    104
    
    
    
    1003,004
    
    
    
    2,782
    
    
    
    2,470Total assets other than financial instruments and deferred tax assetsUnited Kingdom
    
    
    1,817
    
    
    
    2,809Other
    
    
    2
    
    
    
    21,819
    
    
    
    2,811




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 2. Net interest income
 Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mInterest and similar income:Loans and advances to banks
    
    
    448
    
    
    
    227
    
    
    
    141Loans and advances to customers
    
    
    7,394
    
    
    
    6,747
    
    
    
    5,458Other interest earning financial assets
    
    
    73
    
    
    
    69
    
    
    
    45Total interest and similar income
    
    
    7,915
    
    
    
    7,043
    
    
    
    5,644Interest expense and similar charges:Deposits by banks
    
    
    218
    
    
    
    200
    
    
    
    101Deposits by customers
    
    
    3,155
    
    
    
    2,905
    
    
    
    2,514Debt securities in issue and other borrowed funds
    
    
    2,218
    
    
    
    1,955
    
    
    
    1,329Other interest bearing financial liabilities
    
    
    552
    
    
    
    484
    
    
    
    472Total interest expense and similar charges
    
    
    6,143
    
    
    
    5,544
    
    
    
    4,416Net interest income
    
    
    1,772
    
    
    
    1,499
    
    
    
    1,228
 3. Net fee and commission income
 Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mFee and commission income:Insurance products
    
    
    155
    
    
    
    201
    
    
    
    200Retail products
    
    
    461
    
    
    
    450
    
    
    
    473Fund management
    
    
    152
    
    
    
    134
    
    
    
    116Total fee and commission income
    
    
    768
    
    
    
    785
    
    
    
    789Fee and commission expense:Other fees paid
    
    
    97
    
    
    
    90
    
    
    
    90Total fee and commission expense
    
    
    97
    
    
    
    90
    
    
    
    90Net fee and commission income
    
    
    671
    
    
    
    695
    
    
    
    699
 4. Net trading and other income
 Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mNet trading and funding of other items by the trading book
    
    
    54
    
    
    
    260
    
    
    
    408Income from operating lease assets
    
    
    223
    
    
    
    245
    
    
    
    243Income on assets designated at fair value through profit or loss
    
    
    916
    
    
    
    368
    
    
    
    188Expense on liabilities designated at fair value through profit or loss
    
    
    (435
    )
    
    
    (382
    )
    
    
    (261
    )Losses on derivatives managed with assets/liabilities held at fair value through profit or loss
    
    
    (396
    )
    
    
    (19
    )
    
    
    (27
    )Profit on sale of a non-controlling interest in subsidiary undertakings
    
    
    
    
    
    
    105
    
    
    
    Profit on sale of subsidiary undertakings
    
    
    40
    
    
    
    7
    
    
    
    41(Loss)/profit on sale of fixed assets
    
    
    (17
    )
    
    
    5
    
    
    
    1Hedge ineffectiveness and other
    
    
    176
    
    
    
    (2
    )
    
    
    (51
    )561
    
    
    
    587
    
    
    
    542
 5. Administration expenses
 Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mStaff costs:Wages and salaries
    
    
    545
    
    
    
    529
    
    
    
    550Social security costs
    
    
    45
    
    
    
    42
    
    
    
    43Pensions
costs: - defined contribution plans
    
    
    8
    
    
    
    7
    
    
    
    4- defined benefit plans
    
    
    47
    
    
    
    62
    
    
    
    81Other personnel costs
    
    
    50
    
    
    
    77
    
    
    
    88695
    
    
    
    717
    
    
    
    766Property, plant and equipment expenses
    
    
    182
    
    
    
    191
    
    
    
    204Information technology expenses
    
    
    201
    
    
    
    195
    
    
    
    175Other administration expenses
    
    
    265
    
    
    
    266
    
    
    
    2751,343
    
    
    
    1,369
    
    
    
    1,420




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 6. Depreciation and amortisation
 Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mDepreciation of property, plant and equipment excluding operating lease assets
    
    
    78
    
    
    
    76
    
    
    
    85Depreciation of operating lease assets
    
    
    117
    
    
    
    129
    
    
    
    130Amortisation of intangible fixed assets
    
    
    7
    
    
    
    
    
    
    
    202
    
    
    
    205
    
    
    
    215
 7. Audit and other services
  Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mAudit fees:Fees payable to the Companys auditors for the audit of the Groups annual accounts
    
    
    1.6
    
    
    
    1.2
    
    
    
    1.7Fees payable to the Companys auditors and its associates for the audit of the
Companys subsidiaries pursuant to legislation
    
    
    1.6
    
    
    
    1.6
    
    
    
    1.6Total audit fees
    
    
    3.2
    
    
    
    2.8
    
    
    
    3.3Non-audit fees:- Other services pursuant to legislation
    
    
    0.7
    
    
    
    1.4
    
    
    
    1.5- Tax services
    
    
    0.4
    
    
    
    
    
    
    
    0.1- Other services
    
    
    0.8
    
    
    
    0.7
    
    
    
    0.8Total non-audit fees
    
    
    1.9
    
    
    
    2.1
    
    
    
    2.4
       8. Impairment losses/(recoveries) on loans and advances
 Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mImpairment losses on loans and advances to customers
    
    
    394
    
    
    
    388
    
    
    
    385Recoveries of loans and advances to customers
    
    
    (46
    )
    
    
    (44
    )
    
    
    (41
    )348
    
    
    
    344
    
    
    
    344
 9. Taxation expense
 Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mCurrent tax:UK corporation tax on profit of the year
    
    
    218
    
    
    
    122
    
    
    
    41Adjustments and reclassifications in respect of prior periods
    
    
    (65
    )
    
    
    (31
    )
    
    
    120Total current tax
    
    
    153
    
    
    
    91
    
    
    
    161Deferred tax:Current year
    
    
    95
    
    
    
    68
    
    
    
    82Adjustments and reclassifications in respect of prior periods
    
    
    27
    
    
    
    20
    
    
    
    (128
    )Total deferred tax
    
    
    122
    
    
    
    88
    
    
    
    (46
    )Tax on profit for the year
    
    
    275
    
    
    
    179
    
    
    
    115




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
   Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mProfit before tax
    
    
    1,094
    
    
    
    864
    
    
    
    428Tax calculated at a tax rate of 28.5% (2007: 30%, 2006: 30%)
    
    
    310
    
    
    
    259
    
    
    
    128Non taxable gain on sale of subsidiary undertakings
    
    
    (11
    )
    
    
    (33
    )
    
    
    (12
    )Non deductible preference dividends paid
    
    
    8
    
    
    
    9
    
    
    
    17Effect of non-allowable provisions and other non-equalised items
    
    
    19
    
    
    
    (10
    )
    
    
    1Non-taxable dividend income
    
    
    (5
    )
    
    
    (3
    )
    
    
    (5
    )Effect of non-UK profits and losses
    
    
    (8
    )
    
    
    (11
    )
    
    
    (4
    )Utilisation of capital losses for which credit not previously recognised
    
    
    
    
    
    
    (11
    )
    
    
    (2
    )Effect of change in tax rate on deferred tax provision
    
    
    
    
    
    
    (10
    )
    
    
    Adjustment to prior year provisions
    
    
    (38
    )
    
    
    (11
    )
    
    
    (8
    )Income tax expense
    
    
    275
    
    
    
    179
    
    
    
    115
  10. Profit/(loss) on ordinary activities after tax
  11. Discontinued operations
  Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mTotal income net of insurance claims
    
    
    
    
    
    
    
    
    
    
    236Total operating expenses
    
    
    
    
    
    
    
    
    
    
    (73
    )Impairment losses on intangible assets
    
    
    
    
    
    
    
    
    
    
    (69
    )Profit of discontinued operations before tax
    
    
    
    
    
    
    
    
    
    
    94Taxation expense
    
    
    
    
    
    
    
    
    
    
    (75
    )Profit of discontinued operations
    
    
    
    
    
    
    
    
    
    
    19Loss on sale of discontinued operations before and after tax
    
    
    
    
    
    
    
    
    
    
    (264
    )Loss for the year from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (245
    )
 12. Cash and balances with central banks
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mCash in hand
    
    
    347
    
    
    
    365
    
    
    
    347
    
    
    
    365Balances with central banks
    
    
    2,117
    
    
    
    673
    
    
    
    2,109
    
    
    
    6672,464
    
    
    
    1,038
    
    
    
    2,456
    
    
    
    1,032




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 13. Trading assets
 Group2008
    
    
    2007£m
    
    
    £mBalances with central banks
    
    
    2,498
    
    
    
    Loans and advances to banks
    
    
    4,947
    
    
    
    8,847Loans and advances to customers
    
    
    532
    
    
    
    17,255Debt securities
    
    
    16,801
    
    
    
    28,831Equity securities
    
    
    708
    
    
    
    1,49425,486
    
    
    
    56,427
  Group2008
    
    
    2007£m
    
    
    £mIssued by public bodies:- Government securities
    
    
    3,139
    
    
    
    3,722Issued by other issuers:- Bank and building society certificates of deposit
    
    
    8,032
    
    
    
    9,679Other debt securities
    
    
    5,630
    
    
    
    15,43016,801
    
    
    
    28,831
  Group2008
    
    
    2007£m
    
    
    £mDebt securities:- Listed in the UK
    
    
    9,576
    
    
    
    8,054- Listed elsewhere
    
    
    7,225
    
    
    
    11,064- Unlisted
    
    
    
    
    
    
    9,71316,801
    
    
    
    28,831Equity securities:- Listed in the UK
    
    
    317
    
    
    
    965- Listed elsewhere
    
    
    391
    
    
    
    529708
    
    
    
    1,494
  14. Derivative financial instruments
  Derivatives held for trading purposes
     Derivatives held for risk management purposes
   101




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
   GroupContract/ notional
    
    
    Fair value
    
    
    Fair value2008
    
    amount
    
    
    assets
    
    
    liabilitiesDerivatives held for trading
    
    £m
    
    
    £m
    
    
    £mExchange rate contracts:- Cross-currency swaps
    
    
    27,681
    
    
    
    6,501
    
    
    
    533- Foreign exchange swaps and forwards
    
    
    17,102
    
    
    
    1,421
    
    
    
    79344,783
    
    
    
    7,922
    
    
    
    1,326Interest rate contracts:- Interest rate swaps
    
    
    451,467
    
    
    
    16,505
    
    
    
    16,376- Caps, floors and swaptions
    
    
    44,093
    
    
    
    1,775
    
    
    
    1,841- Futures (exchange traded)
    
    
    55,534
    
    
    
    232
    
    
    
    - Forward rate agreements
    
    
    250,324
    
    
    
    604
    
    
    
    599801,418
    
    
    
    19,116
    
    
    
    18,816Equity and credit contracts:- Equity index and similar products
    
    
    16,245
    
    
    
    1,597
    
    
    
    3,659- Equity index options (exchange traded)
    
    
    11,564
    
    
    
    843
    
    
    
    803- Credit default swaps and similar products
    
    
    1,829
    
    
    
    110
    
    
    
    16729,638
    
    
    
    2,550
    
    
    
    4,629Total derivative assets and liabilities held for trading
    
    
    875,839
    
    
    
    29,588
    
    
    
    24,771
 GroupContract/ notional
    
    
    Fair value
    
    
    Fair value2008
    
    amount
    
    
    assets
    
    
    liabilitiesDerivatives held for fair value hedging
    
    £m
    
    
    £m
    
    
    £mExchange rate contracts:- Cross-currency swaps
    
    
    2,425
    
    
    
    1,056
    
    
    
    Interest rate contracts:- Interest rate swaps
    
    
    46,890
    
    
    
    1,637
    
    
    
    1,538Total derivative assets and liabilities held for fair value hedging
    
    
    49,315
    
    
    
    2,693
    
    
    
    1,538Total recognised derivative assets and liabilities
    
    
    925,154
    
    
    
    32,281
    
    
    
    26,309
 CompanyContract/ notional
    
    
    Fair value
    
    
    Fair value2008
    
    amount
    
    
    assets
    
    
    liabilitiesDerivatives held for trading
    
    £m
    
    
    £m
    
    
    £mExchange rate contracts:- Cross-currency swaps
    
    
    22,004
    
    
    
    1,611
    
    
    
    3,334Interest rate contracts:- Interest rate swaps
    
    
    56,457
    
    
    
    490
    
    
    
    162- Caps, floors and swaptions
    
    
    246
    
    
    
    3
    
    
    
    56,703
    
    
    
    493
    
    
    
    162Equity and credit contracts:- Equity index and similar products
    
    
    685
    
    
    
    8
    
    
    
    176Total derivative assets and liabilities held for trading
    
    
    79,392
    
    
    
    2,112
    
    
    
    3,672
 CompanyContract/ notional
    
    
    Fair value
    
    
    Fair value2008
    
    amount
    
    
    assets
    
    
    liabilitiesDerivatives held for fair value hedging
    
    £m
    
    
    £m
    
    
    £mExchange rate contracts:- Cross-currency swaps
    
    
    1,570
    
    
    
    
    
    
    
    1,394Interest rate contracts:- Interest rate swaps
    
    
    5,141
    
    
    
    623
    
    
    
    327Total derivative assets and liabilities held for fair value hedging
    
    
    6,711
    
    
    
    623
    
    
    
    1,721Total recognised derivative assets and liabilities
    
    
    86,103
    
    
    
    2,735
    
    
    
    5,393
 102




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 GroupContract/ notional
    
    
    Fair value
    
    
    Fair value2007
    
    amount
    
    
    assets
    
    
    liabilitiesDerivatives held for trading
    
    £m
    
    
    £m
    
    
    £mExchange rate contracts:- Cross-currency swaps
    
    
    28,386
    
    
    
    816
    
    
    
    823- Foreign exchange swaps and forwards
    
    
    21,524
    
    
    
    256
    
    
    
    26049,910
    
    
    
    1,072
    
    
    
    1,083Interest rate contracts:- Interest rate swaps
    
    
    436,212
    
    
    
    5,211
    
    
    
    5,724- Caps, floors and swaptions
    
    
    42,318
    
    
    
    649
    
    
    
    621- Futures (exchange traded)
    
    
    29,383
    
    
    
    88
    
    
    
    - Forward rate agreements
    
    
    148,742
    
    
    
    76
    
    
    
    78656,655
    
    
    
    6,024
    
    
    
    6,423Equity and credit contracts:- Equity index and similar products
    
    
    15,204
    
    
    
    847
    
    
    
    1,820- Equity index options (exchange traded)
    
    
    6,009
    
    
    
    556
    
    
    
    216- Credit default swaps and similar products
    
    
    35,588
    
    
    
    1,020
    
    
    
    18656,801
    
    
    
    2,423
    
    
    
    2,222Total derivative assets and liabilities held for trading
    
    
    763,366
    
    
    
    9,519
    
    
    
    9,728
 GroupContract/ notional
    
    
    Fair value
    
    
    Fair value2007
    
    amount
    
    
    assets
    
    
    liabilitiesDerivatives held for fair value hedging
    
    £m
    
    
    £m
    
    
    £mExchange rate contracts:- Cross-currency swaps
    
    
    2,425
    
    
    
    
    
    
    
    Interest rate contracts:- Interest rate swaps
    
    
    39,629
    
    
    
    432
    
    
    
    203Total derivative assets and liabilities held for fair value hedging
    
    
    42,054
    
    
    
    432
    
    
    
    203Total recognised derivative assets and liabilities
    
    
    805,420
    
    
    
    9,951
    
    
    
    9,931
 CompanyContract/ notional
    
    
    Fair value
    
    
    Fair value2007
    
    amount
    
    
    assets
    
    
    liabilitiesDerivatives held for trading
    
    £m
    
    
    £m
    
    
    £mExchange rate contracts:- Cross-currency swaps
    
    
    7,654
    
    
    
    25
    
    
    
    194Interest rate contracts:- Interest rate swaps
    
    
    48,531
    
    
    
    181
    
    
    
    343- Caps, floors and swaptions
    
    
    424
    
    
    
    
    
    
    
    448,955
    
    
    
    181
    
    
    
    347Equity and credit contracts:- Equity index and similar products
    
    
    564
    
    
    
    120
    
    
    
    208Total derivative assets and liabilities held for trading
    
    
    57,173
    
    
    
    326
    
    
    
    749
 CompanyContract/ notional
    
    
    Fair value
    
    
    Fair value2007
    
    amount
    
    
    assets
    
    
    liabilitiesDerivatives held for fair value hedging
    
    £m
    
    
    £m
    
    
    £mExchange rate contracts:- Cross-currency swaps
    
    
    998
    
    
    
    222
    
    
    
    Interest rate contracts:- Interest rate swaps
    
    
    4,207
    
    
    
    141
    
    
    
    302Total derivative assets and liabilities held for fair value hedging
    
    
    5,205
    
    
    
    363
    
    
    
    302Total recognised derivative assets and liabilities
    
    
    62,378
    
    
    
    689
    
    
    
    1,051
 Net gains or losses arising from fair value hedges
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mNet gains/(losses):On hedging instruments
    
    
    39
    
    
    
    (413
    )
    
    
    885
    
    
    
    26On the hedged items attributable to hedged risk
    
    
    53
    
    
    
    449
    
    
    
    (906
    )
    
    
    (28
    )Hedge ineffectiveness
    
    
    92
    
    
    
    36
    
    
    
    (21
    )
    
    
    (2
    )
  103




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 15. Financial assets designated at fair value
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mLoans and advances to banks
    
    
    
    
    
    
    
    
    
    
    162
    
    
    
    Loans and advances to customers
    
    
    6,687
    
    
    
    5,701
    
    
    
    44
    
    
    
    54Debt securities
    
    
    4,627
    
    
    
    6,082
    
    
    
    47,319
    
    
    
    7,44611,314
    
    
    
    11,783
    
    
    
    47,525
    
    
    
    7,500
  >
    
    Loans and advances to customers, representing loans secured on
residential property to housing associations. These would otherwise
have been measured at amortised cost with the associated derivatives
used to economically hedge the risk held for trading and measured at
fair value through profit or loss.>
    
    Debt securities in issue representing holdings of asset-backed
securities. At the date of their acquisition, they were managed, and
their performance was evaluated, on a fair value basis in accordance
with a documented investment strategy, and information about them was
provided internally on that basis to the Groups key management
personnel. These securities are now managed on an accruals basis,
but are not eligible for reclassification under IAS 39.
   Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mListed in the UK
    
    
    
    
    
    
    304
    
    
    
    26,978
    
    
    
    Listed elsewhere
    
    
    4,082
    
    
    
    5,510
    
    
    
    20,341
    
    
    
    7,446Unlisted
    
    
    545
    
    
    
    268
    
    
    
    
    
    
    
    4,627
    
    
    
    6,082
    
    
    
    47,319
    
    
    
    7,446
 16. Loans and advances to banks
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mPlacements with other banks
    
    
    5,484
    
    
    
    1,801
    
    
    
    970
    
    
    
    1,171Amounts due from parent
    
    
    9,353
    
    
    
    1,640
    
    
    
    1,004
    
    
    
    1,018Amounts due from associated undertakings
    
    
    9,464
    
    
    
    
    
    
    
    334
    
    
    
    Amounts due from subsidiaries
    
    
    
    
    
    
    
    
    
    
    114,178
    
    
    
    38,49624,301
    
    
    
    3,441
    
    
    
    116,486
    
    
    
    40,685
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mRepayable:On demand
    
    
    2,814
    
    
    
    1,271
    
    
    
    7,826
    
    
    
    5,771In not more than 3 months
    
    
    9,343
    
    
    
    940
    
    
    
    50,760
    
    
    
    3,791In more than 3 months but not more than 1 year
    
    
    10,663
    
    
    
    204
    
    
    
    6,135
    
    
    
    3,822In more than 1 year but not more than 5 years
    
    
    61
    
    
    
    
    
    
    
    18,263
    
    
    
    20,930In more than 5 years
    
    
    1,420
    
    
    
    1,026
    
    
    
    33,502
    
    
    
    6,37124,301
    
    
    
    3,441
    
    
    
    116,486
    
    
    
    40,685
 17. Loans and advances to customers
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mAdvances secured on residential properties
    
    
    115,488
    
    
    
    105,169
    
    
    
    115,474
    
    
    
    105,156Corporate loans
    
    
    6,776
    
    
    
    1,302
    
    
    
    24
    
    
    
    17Other secured advances
    
    
    4,152
    
    
    
    2,962
    
    
    
    4,133
    
    
    
    2,889Other unsecured advances
    
    
    3,249
    
    
    
    3,265
    
    
    
    3,082
    
    
    
    3,258Amounts due from subsidiaries
    
    
    
    
    
    
    
    
    
    
    1,328
    
    
    
    310Loans and advances to customers
    
    
    129,665
    
    
    
    112,698
    
    
    
    124,041
    
    
    
    111,630Less: loan loss allowances
    
    
    (642
    )
    
    
    (551
    )
    
    
    (722
    )
    
    
    (654
    )Loans and advances to customers, net of loan loss allowances
    
    
    129,023
    
    
    
    112,147
    
    
    
    123,319
    
    
    
    110,976
 104




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mRepayable:On demand
    
    
    528
    
    
    
    331
    
    
    
    523
    
    
    
    291In no more than 3 months
    
    
    5,881
    
    
    
    1,657
    
    
    
    1,418
    
    
    
    610In more than 3 months but not more than 1 year
    
    
    2,712
    
    
    
    1,983
    
    
    
    2,532
    
    
    
    2,121In more than 1 year but not more than 5 years
    
    
    15,118
    
    
    
    12,725
    
    
    
    13,248
    
    
    
    12,681In more than 5 years
    
    
    105,426
    
    
    
    96,002
    
    
    
    106,320
    
    
    
    95,927Loans and advances to customers
    
    
    129,665
    
    
    
    112,698
    
    
    
    124,041
    
    
    
    111,630Less: loan loss allowances
    
    
    (642
    )
    
    
    (551
    )
    
    
    (722
    )
    
    
    (654
    )Loans and advances to customers, net of loan loss allowances
    
    
    129,023
    
    
    
    112,147
    
    
    
    123,319
    
    
    
    110,976
  Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mFixed rate
    
    
    65,678
    
    
    
    56,031
    
    
    
    66,682
    
    
    
    55,942Variable rate
    
    
    63,987
    
    
    
    56,667
    
    
    
    57,359
    
    
    
    55,688Less: loan loss allowances
    
    
    (642
    )
    
    
    (551
    )
    
    
    (722
    )
    
    
    (654
    )129,023
    
    
    
    112,147
    
    
    
    123,319
    
    
    
    110,976
  GroupLoans secured
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Otheron residential
    
    
    Corporate
    
    
    Finance
    
    
    secured
    
    
    unsecuredproperty
    
    
    Loans
    
    
    leases
    
    
    advances
    
    
    advances
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAs at 1 January 2008
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    335
    
    
    
    551Charge/(release) to the income statement:- Individually assessed
    
    
    132
    
    
    
    13
    
    
    
    
    
    
    
    14
    
    
    
    239
    
    
    
    398- Collectively assessed
    
    
    21
    
    
    
    13
    
    
    
    
    
    
    
    3
    
    
    
    (41
    )
    
    
    (4
    )153
    
    
    
    26
    
    
    
    
    
    
    
    17
    
    
    
    198
    
    
    
    394Write offs
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (262
    )
    
    
    (303
    )At 31 December 2008
    
    
    297
    
    
    
    26
    
    
    
    
    
    
    
    48
    
    
    
    271
    
    
    
    642As at 1 January 2007
    
    
    105
    
    
    
    
    
    
    
    1
    
    
    
    76
    
    
    
    354
    
    
    
    536Charge/(release) to the income statement:- Individually assessed
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    346
    
    
    
    367- Collectively assessed
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    (26
    )
    
    
    2180
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    320
    
    
    
    388Write offs
    
    
    (9
    )
    
    
    
    
    
    
    (1
    )
    
    
    (24
    )
    
    
    (339
    )
    
    
    (373
    )At 31 December 2007
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    335
    
    
    
    551As at 1 January 2006
    
    
    56
    
    
    
    
    
    
    
    3
    
    
    
    123
    
    
    
    212
    
    
    
    394Charge/(release) to the income statement:- Individually assessed
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    289
    
    
    
    299- Collectively assessed
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    59
    
    
    
    8760
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    348
    
    
    
    386Write offs
    
    
    (11
    )
    
    
    
    
    
    
    (2
    )
    
    
    (25
    )
    
    
    (206
    )
    
    
    (244
    )At 31 December 2006
    
    
    105
    
    
    
    
    
    
    
    1
    
    
    
    76
    
    
    
    354
    
    
    
    536
 CompanyLoans secured
    
    
    Amounts
    
    
    
    
    
    
    Other
    
    
    Otheron residential
    
    
    due from
    
    
    Finance
    
    
    secured
    
    
    unsecuredproperty
    
    
    subsidiaries
    
    
    leases
    
    
    advances
    
    
    advances
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAs at 1 January 2008
    
    
    176
    
    
    
    136
    
    
    
    
    
    
    
    11
    
    
    
    331
    
    
    
    654Charge/(release) to the income statement
    
    
    153
    
    
    
    (23
    )
    
    
    
    
    
    
    32
    
    
    
    197
    
    
    
    359Write offs
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (258
    )
    
    
    (291
    )At 31 December 2008
    
    
    297
    
    
    
    113
    
    
    
    
    
    
    
    42
    
    
    
    270
    
    
    
    722As at 1 January 2007
    
    
    105
    
    
    
    161
    
    
    
    1
    
    
    
    4
    
    
    
    352
    
    
    
    623Charge/(release) to the income statement
    
    
    80
    
    
    
    (25
    )
    
    
    
    
    
    
    8
    
    
    
    316
    
    
    
    379Write offs
    
    
    (9
    )
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    (337
    )
    
    
    (348
    )At 31 December 2007
    
    
    176
    
    
    
    136
    
    
    
    
    
    
    
    11
    
    
    
    331
    
    
    
    654As at 1 January 2006
    
    
    48
    
    
    
    186
    
    
    
    3
    
    
    
    6
    
    
    
    210
    
    
    
    453Charge/(release) to the income statement
    
    
    60
    
    
    
    (25
    )
    
    
    
    
    
    
    1
    
    
    
    374
    
    
    
    410Write offs
    
    
    (3
    )
    
    
    
    
    
    
    (2
    )
    
    
    (3
    )
    
    
    (232
    )
    
    
    (240
    )At 31 December 2006
    
    
    105
    
    
    
    161
    
    
    
    1
    
    
    
    4
    
    
    
    352
    
    
    
    623
  105




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 18. Securitisation of assets
        Gross assets securitised
    
    
    Non-recourse financeSecuritisation company
    
    Closing date of securitisation

    
    £m
    
    
    £mHolmes Financing (No. 1) plc
    
    26 July 2000
    
    
    275
    
    
    
    275Holmes Financing (No. 8) plc
    
    1 April 2004
    
    
    
    
    
    
    1,278Holmes Financing (No. 9) plc
    
    8 December 2005
    
    
    1,507
    
    
    
    1,507Holmes Financing (No. 10) plc
    
    8 August 2006
    
    
    2,354
    
    
    
    2,364Holmes Master Issuer plc - 2006/1
    
    28 November 2006
    
    
    2,618
    
    
    
    2,618Holmes Master Issuer plc - 2007/1
    
    28 March 2007
    
    
    4,210
    
    
    
    4,210Holmes Master Issuer plc - 2007/2
    
    20 June 2007
    
    
    4,319
    
    
    
    4,319Holmes Master Issuer plc - 2007/3
    
    21 December 2007
    
    
    7,259
    
    
    
    7,259
    *Holmes Master Issuer plc - 2008/1
    
    10 April 2008
    
    
    8,240
    
    
    
    8,240
    *Holmes Master Issuer plc - 2008/2
    
    19 December 2008
    
    
    13,360
    
    
    
    13,360
    *Beneficial interest in mortgages held by Holmes Trustees Limited
    
    
    
    
    
    
    8,759
    
    
    
    52,901
    
    
    
    45,430
     106




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Income statement for the year ended 31 December
 Securitisation companies2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mNet interest income
    
    
    85
    
    
    
    35
    
    
    
    21Other operating income/(expenses)
    
    
    169
    
    
    
    35
    
    
    
    67Administration expenses
    
    
    (1
    )
    
    
    (1
    )
    
    
    Impairment losses on loans and advances
    
    
    (52
    )
    
    
    (8
    )
    
    
    (4
    )Taxation expense/(income)
    
    
    34
    
    
    
    (17
    )
    
    
    (25
    )Profit/(loss) for the year
    
    
    235
    
    
    
    44
    
    
    
    59
 Balance sheet as at 31 December
 Securitisation companies2008
    
    
    2007£m
    
    
    £mDerivative financial instruments
    
    
    8,925
    
    
    
    866Loans and advances to banks
    
    
    2,937
    
    
    
    2,375Loans and advances to customers
    
    
    44,183
    
    
    
    29,569Other assets
    
    
    
    
    
    
    11Total assets
    
    
    56,045
    
    
    
    32,821Deposits by banks
    
    
    1,346
    
    
    
    743Derivative financial instruments
    
    
    
    
    
    
    588Debt securities in issue
    
    
    54,377
    
    
    
    31,357Other liabilities
    
    
    1
    
    
    
    47Total liabilities
    
    
    55,724
    
    
    
    32,735Retained earnings
    
    
    321
    
    
    
    86Total liabilities and equity
    
    
    56,045
    
    
    
    32,821
  19. Available-for-sale securities
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mDebt securities
    
    
    970
    
    
    
    8
    
    
    
    
    
    
    
    8Equity securities
    
    
    35
    
    
    
    32
    
    
    
    25
    
    
    
    201,005
    
    
    
    40
    
    
    
    25
    
    
    
    28
  Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mDue in less than 1 year
    
    
    970
    
    
    
    8
    
    
    
    
    
    
    
    8Due in more then 1 year but less than 5 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Due in more than one year but not more than 5 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    970
    
    
    
    8
    
    
    
    
    
    
    
    8
  Group
    

    

    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mListed in the UK
    
    
    10
    
    
    
    12
    
    
    
    
    
    
    
    Unlisted
    
    
    25
    
    
    
    20
    
    
    
    25
    
    
    
    2035
    
    
    
    32
    
    
    
    25
    
    
    
    20
  Group
    
    
    Company£m
    
    
    £mAt 1 January 2008
    
    
    40
    
    
    
    28Additions
    
    
    1,222
    
    
    
    9Disposals (sale and redemption)
    
    
    (286
    )
    
    
    (8
    )Amortisation of discount
    
    
    21
    
    
    
    Movement in fair value
    
    
    8
    
    
    
    (4
    )At 31 December 2008
    
    
    1,005
    
    
    
    25
 Group
    
    
    Company£m
    
    
    £mAt 1 January 2007
    
    
    23
    
    
    
    12Disposals (sale and redemption)
    
    
    (2
    )
    
    
    (2
    )Movement in fair value
    
    
    19
    
    
    
    18At 31 December 2007
    
    
    40
    
    
    
    28
 107




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 20. Investment in subsidiary undertakings
  CompanyCost
    
    
    Impairment
    
    
    Net book value£m
    
    
    £m
    
    
    £mAt 1 January 2008
    
    
    5,213
    
    
    
    (160
    )
    
    
    5,053Additions
    
    
    208
    
    
    
    
    
    
    
    208Disposals within the Group
    
    
    (94
    )
    
    
    
    
    
    
    (94
    )Write-back of impairments
    
    
    
    
    
    
    55
    
    
    
    55At 31 December 2008
    
    
    5,327
    
    
    
    (105
    )
    
    
    5,222
 Cost
    
    
    Impairment
    
    
    Net book value£m
    
    
    £m
    
    
    £mAt 1 January 2007
    
    
    5,148
    
    
    
    (222
    )
    
    
    4,926Additions
    
    
    418
    
    
    
    
    
    
    
    418Disposals
    
    
    (353
    )
    
    
    29
    
    
    
    (324
    )Write-back of impairments
    
    
    
    
    
    
    33
    
    
    
    33At 31 December 2007
    
    
    5,213
    
    
    
    (160
    )
    
    
    5,053
    Principal subsidiary
    
    Nature of business
    
    % Interest held

    
    Country of incorporation or registrationAbbey National International Limited*
    
    Personal finance
    
    
    100
    %
    
    JerseyAbbey National North America LLC*
    
    Funding
    
    
    100
    %
    
    United StatesAbbey National Treasury Services plc
    
    Treasury operations
    
    
    100
    %
    
    England & WalesBradford & Bingley International Limited
    
    Bank, deposit taker
    
    
    100
    %
    
    Isle of ManCater Allen International Limited*
    
    Securities financing
    
    
    100
    %
    
    England & WalesCater Allen Limited*
    
    Bank, deposit taker
    
    
    51
    %
    
    England & Wales
 
 *
    
    Held indirectly through subsidiary companies.  21. Investment in associated undertakings
  Group
    
    
    Company£m
    
    
    £mAt 1 January 2008
    
    
    29
    
    
    
    33Additional investments
    
    
    708
    
    
    
    708Share of results
    
    
    (2
    )
    
    
    At 31 December 2008
    
    
    735
    
    
    
    741
 Group
    
    
    Company£m
    
    
    £mAt 1 January 2007
    
    
    22
    
    
    
    25Additional investment
    
    
    8
    
    
    
    8Share of results
    
    
    (1
    )
    
    
    At 31 December 2007
    
    
    29
    
    
    
    33
 108




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
   2008
 Country of
    

    Assets
    
    
    Liabilities
    
    
    Income
    
    
    Profit/(loss)
    
    
    % interestName and nature of business
    
    incorporation

    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    heldPSA Finance plc, personal finance
    
    England and Wales
    
    
    4
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    50.0Santander Consumer (UK) plc, consumer finance
    
    England and Wales
    
    
    714
    
    
    
    (647
    )
    
    
    73
    
    
    
    (2
    )
    
    
    49.9Alliance & Leicester plc, financial services
    
    England and Wales
    
    
    75,248
    
    
    
    (73,420
    )
    
    
    824
    *
    
    
    (1,288
    )*
    
    
    35.6
  2007
 Country of

    
    Assets
    
    
    Liabilities
    
    
    Income
    
    
    Profit/(loss)
    
    
    % interestName and nature of business
    
    incorporation
    
    £m

    
    £m
    

    £m

    
    £m

    
    heldPSA Finance plc, personal finance
    
    England and Wales
    
    
    8
    
    
    
    (1
    )
    
    
    4
    
    
    
    3
    
    
    
    50.0Santander Consumer (UK) plc, consumer finance
    
    England and Wales
    
    
    592
    
    
    
    (542
    )
    
    
    57
    
    
    
    (7
    )
    
    
    49.9
  22. Intangible assets
 a) Goodwill
 Group
    

    

    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mCostAt 1 January
    
    
    112
    
    
    
    112
    
    
    
    
    
    
    
    Acquisitions
    
    
    341
    
    
    
    
    
    
    
    341
    
    
    
    At 31 December
    
    
    453
    
    
    
    112
    
    
    
    341
    
    
    
    Accumulated impairmentAt 1 January and 31 December
    
    
    22
    
    
    
    22
    
    
    
    
    
    
    
    Net book value
    
    
    431
    
    
    
    90
    
    
    
    341
    
    
    
    
   Impairment of goodwill
   Goodwill2008
    
    
    2007
    
    
    
    
    Key

    
    Discount
    
    
    GrowthBusiness Division
    
    Cash Generating Unit
    
    £m
    
    
    £m
    
    
    Basis of valuation
    
    assumptions

    
    rate
    
    
    rateRetail Banking
    
    Cater Allen Private Bank
    
    
    90
    
    
    
    90
    
    
    Value in use: cash flow
    
    3 year plan
    
    
    3.59
    %
    
    
    2.25
    %Retail Banking
    
    Bradford & Bingley branches and savings
    
    
    341
    
    
    
    
    
    
    Value in use: cash flow
    
    3 year plan
    
    
    5.71
    %
    
    
    2.50
    %
 109




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 b) Other intangibles
 Group
    
    
    Company2008
    
    
    2008£m
    
    
    £mCostAt 1 January 2008
    
    
    
    
    
    
    Acquisition of business
    
    
    4
    
    
    
    4Additions
    
    
    81
    
    
    
    68Disposals
    
    
    (7
    )
    
    
    At 31 December 2008
    
    
    78
    
    
    
    72Accumulated amortisation / impairmentAt 1 January 2008
    
    
    
    
    
    
    Charge for the year
    
    
    7
    
    
    
    7At 31 December 2008
    
    
    7
    
    
    
    7Net book value
    
    
    71
    
    
    
    65
  23. Property, plant and equipment (excluding operating lease assets)
 GroupOwner-occupied
    
    
    Office fixtures
    
    
    Computerproperties
    
    
    and equipment
    
    
    software
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mCost:At 1 January 2008
    
    
    74
    
    
    
    479
    
    
    
    359
    
    
    
    912Acquired through business combinations
    
    
    34
    
    
    
    10
    
    
    
    
    
    
    
    44Additions
    
    
    11
    
    
    
    59
    
    
    
    39
    
    
    
    109Disposals
    
    
    (2
    )
    
    
    (28
    )
    
    
    (13
    )
    
    
    (43
    )At 31 December 2008
    
    
    117
    
    
    
    520
    
    
    
    385
    
    
    
    1,022Accumulated depreciation:At 1 January 2008
    
    
    18
    
    
    
    283
    
    
    
    83
    
    
    
    384Depreciation charge for the year
    
    
    7
    
    
    
    49
    
    
    
    22
    
    
    
    78Disposals
    
    
    (1
    )
    
    
    (20
    )
    
    
    
    
    
    
    (21
    )At 31 December 2008
    
    
    24
    
    
    
    312
    
    
    
    105
    
    
    
    441Net book value
    
    
    93
    
    
    
    208
    
    
    
    280
    
    
    
    581
 GroupOwner-occupied
    
    
    Office fixtures
    
    
    Computerproperties
    
    
    and equipment
    
    
    software
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mCost:At 1 January 2007
    
    
    55
    
    
    
    432
    
    
    
    261
    
    
    
    748Additions
    
    
    23
    
    
    
    66
    
    
    
    103
    
    
    
    192Disposals
    
    
    (4
    )
    
    
    (19
    )
    
    
    (5
    )
    
    
    (28
    )At 31 December 2007
    
    
    74
    
    
    
    479
    
    
    
    359
    
    
    
    912Accumulated depreciation:At 1 January 2007
    
    
    14
    
    
    
    245
    
    
    
    74
    
    
    
    333Depreciation charge for the year
    
    
    6
    
    
    
    56
    
    
    
    14
    
    
    
    76Disposals
    
    
    (2
    )
    
    
    (18
    )
    
    
    (5
    )
    
    
    (25
    )At 31 December 2007
    
    
    18
    
    
    
    283
    
    
    
    83
    
    
    
    384Net book value
    
    
    56
    
    
    
    196
    
    
    
    276
    
    
    
    528
 CompanyOwner-occupied
    
    
    Office fixtures
    
    
    Computerproperties
    
    
    and equipment
    
    
    software
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mCost:At 1 January 2008
    
    
    68
    
    
    
    453
    
    
    
    279
    
    
    
    800Acquired through business combinations
    
    
    34
    
    
    
    10
    
    
    
    
    
    
    
    44Additions
    
    
    11
    
    
    
    56
    
    
    
    39
    
    
    
    106Disposals
    
    
    (1
    )
    
    
    (21
    )
    
    
    (3
    )
    
    
    (25
    )At 31 December 2008
    
    
    112
    
    
    
    498
    
    
    
    315
    
    
    
    925Accumulated depreciation:At 1 January 2008
    
    
    15
    
    
    
    271
    
    
    
    13
    
    
    
    299Depreciation charge
    
    
    7
    
    
    
    45
    
    
    
    22
    
    
    
    74Disposals
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    (17
    )At 31 December 2008
    
    
    22
    
    
    
    299
    
    
    
    35
    
    
    
    356Net book value
    
    
    90
    
    
    
    199
    
    
    
    280
    
    
    
    569
 110




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 CompanyOwner-occupied
    
    
    Office fixtures
    
    
    Computerproperties
    
    
    and equipment
    
    
    software
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mCost:At 1 January 2007
    
    
    47
    
    
    
    406
    
    
    
    186
    
    
    
    639Additions
    
    
    23
    
    
    
    60
    
    
    
    98
    
    
    
    181Disposals
    
    
    (2
    )
    
    
    (13
    )
    
    
    (5
    )
    
    
    (20
    )At 31 December 2007
    
    
    68
    
    
    
    453
    
    
    
    279
    
    
    
    800Accumulated depreciation:At 1 January 2007
    
    
    10
    
    
    
    230
    
    
    
    5
    
    
    
    245Depreciation charge
    
    
    6
    
    
    
    53
    
    
    
    13
    
    
    
    72Disposals
    
    
    (1
    )
    
    
    (12
    )
    
    
    (5
    )
    
    
    (18
    )At 31 December 2007
    
    
    15
    
    
    
    271
    
    
    
    13
    
    
    
    299Net book value
    
    
    53
    
    
    
    182
    
    
    
    266
    
    
    
    501
  24. Operating lease assets
 Group2008
    
    
    2007£m
    
    
    £mCostAt 1 January
    
    
    3,474
    
    
    
    3,275Additions
    
    
    88
    
    
    
    215Disposals of subsidiary undertaiking
    
    
    (3,562
    )
    
    
    (16
    )At 31 December
    
    
    
    
    
    
    3,474Depreciation and impairmentAt 1 January
    
    
    1,310
    
    
    
    1,193Charge for the year
    
    
    117
    
    
    
    129Impairment charge
    
    
    
    
    
    
    4Disposals of subsidiary undertaiking
    
    
    (1,427
    )
    
    
    (16
    )At 31 December
    
    
    
    
    
    
    1,310Net book value
    
    
    
    
    
    
    2,164
  25. Deferred tax
   Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 January
    
    
    121
    
    
    
    240
    
    
    
    614
    
    
    
    747Income statement charge
    
    
    (122
    )
    
    
    (88
    )
    
    
    (174
    )
    
    
    (103
    )Credited/ (charged) to equity
    
    
    8
    
    
    
    9
    
    
    
    12
    
    
    
    10Disposal of subsidiary undertaking
    
    
    446
    
    
    
    (40
    )
    
    
    
    
    
    
    (40
    )At 31 December
    
    
    453
    
    
    
    121
    
    
    
    452
    
    
    
    614
  Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mDeferred tax liabilitiesAccelerated tax depreciation
    
    
    
    
    
    
    (463
    )
    
    
    
    
    
    
    Other temporary differences
    
    
    (86
    )
    
    
    (81
    )
    
    
    (6
    )
    
    
    (6
    )(86
    )
    
    
    (544
    )
    
    
    (6
    )
    
    
    (6
    )
 111




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mDeferred tax assetsPensions and other post retirement benefits
    
    
    224
    
    
    
    275
    
    
    
    224
    
    
    
    275Accelerated book depreciation
    
    
    69
    
    
    
    45
    
    
    
    66
    
    
    
    41IAS 32 & IAS 39 transitional adjustments
    
    
    95
    
    
    
    135
    
    
    
    76
    
    
    
    91Other temporary differences
    
    
    105
    
    
    
    64
    
    
    
    46
    
    
    
    67Tax losses carried forward
    
    
    46
    
    
    
    146
    
    
    
    46
    
    
    
    146539
    
    
    
    665
    
    
    
    458
    
    
    
    620
  Group
    
    
    Company2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mPensions and other post retirement benefits
    
    
    291
    
    
    
    300
    
    
    
    309
    
    
    
    289
    
    
    
    301
    
    
    
    309
    Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mAccelerated tax depreciation
    
    
    24
    
    
    
    1
    
    
    
    36Pensions and other post-retirement benefits
    
    
    (63
    )
    
    
    (4
    )
    
    
    (27
    )IAS 32 & IAS 39 transition adjustments
    
    
    (20
    )
    
    
    (23
    )
    
    
    (16
    )Tax losses carried forward
    
    
    (100
    )
    
    
    (48
    )
    
    
    105Other temporary differences
    
    
    37
    
    
    
    (14
    )
    
    
    (52
    )(122
    )
    
    
    (88
    )
    
    
    46
  26. Other assets
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mTrade and other receivables
    
    
    1,668
    
    
    
    746
    
    
    
    834
    
    
    
    541Prepayments
    
    
    48
    
    
    
    48
    
    
    
    47
    
    
    
    45Accrued income
    
    
    16
    
    
    
    12
    
    
    
    
    
    
    
    General insurance assets
    
    
    109
    
    
    
    100
    
    
    
    109
    
    
    
    1001,841
    
    
    
    906
    
    
    
    990
    
    
    
    686
 27. Deposits by banks
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mItems in the course of transmission
    
    
    922
    
    
    
    786
    
    
    
    895
    
    
    
    769Sale and repurchase agreements
    
    
    
    
    
    
    
    
    
    
    3,620
    
    
    
    Amounts due to subsidiaries
    
    
    
    
    
    
    
    
    
    
    120,285
    
    
    
    59,005Other deposits
    
    
    2,415
    
    
    
    7,137
    
    
    
    46
    
    
    
    243,337
    
    
    
    7,923
    
    
    
    124,846
    
    
    
    59,798
 112




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mRepayable:On demand
    
    
    1,096
    
    
    
    416
    
    
    
    2,907
    
    
    
    2,060In not more than 3 months
    
    
    1,987
    
    
    
    7,256
    
    
    
    17,600
    
    
    
    13,838In more than 3 months but not more than 1 year
    
    
    144
    
    
    
    251
    
    
    
    18,575
    
    
    
    7,845In more than 1 year but not more than 5 years
    
    
    110
    
    
    
    
    
    
    
    53,245
    
    
    
    31,045In more than 5 years
    
    
    
    
    
    
    
    
    
    
    32,519
    
    
    
    5,0103,337
    
    
    
    7,923
    
    
    
    124,846
    
    
    
    59,798
 28. Deposits by customers
 Group
    
    
    
    
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mRetail deposits
    
    
    95,505
    
    
    
    67,208
    
    
    
    85,150
    
    
    
    59,187Amounts due to subsidiaries
    
    
    
    
    
    
    
    
    
    
    67,801
    
    
    
    34,623Wholesale deposits by customers
    
    
    3,741
    
    
    
    2,442
    
    
    
    2,515
    
    
    
    1,87799,246
    
    
    
    69,650
    
    
    
    155,466
    
    
    
    95,687Repayable:In no more than 3 months
    
    
    81,649
    
    
    
    64,204
    
    
    
    82,060
    
    
    
    59,588In more than 3 months but no more than 1 year
    
    
    13,892
    
    
    
    3,579
    
    
    
    13,506
    
    
    
    3,322In more than 1 year but not more than 5 years
    
    
    3,070
    
    
    
    1,728
    
    
    
    8,804
    
    
    
    5,687In more than 5 years
    
    
    635
    
    
    
    139
    
    
    
    51,096
    
    
    
    27,09099,246
    
    
    
    69,650
    
    
    
    155,466
    
    
    
    95,687
   29. Trading liabilities
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mDeposits by banks
    
    
    34,341
    
    
    
    19,632
    
    
    
    
    
    
    
    Deposits by customers
    
    
    4,622
    
    
    
    20,498
    
    
    
    
    
    
    
    Short positions in securities
    
    
    751
    
    
    
    2,252
    
    
    
    739
    
    
    
    Debt securities in issue
    
    
    1,024
    
    
    
    12,534
    
    
    
    
    
    
    
    40,738
    
    
    
    54,916
    
    
    
    739
    
    
    
    
  Equity index-linked deposits
 Capital at Risk:
 Capital Guaranteed/Protected:
  113




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 30. Financial liabilities designated at fair value
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mDebt securities in issue
    
    
    4,945
    
    
    
    7,538
    
    
    
    
    
    
    
    
  31. Debt securities in issue
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mBonds and medium term notes
    
    
    36,940
    
    
    
    29,613
    
    
    
    
    
    
    
    Other debt securities in issue
    
    
    4,238
    
    
    
    6,099
    
    
    
    
    
    
    
    41,178
    
    
    
    35,712
    
    
    
    
    
    
    
    
  Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007Interest rate

    
    Maturity
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mEuro
    
    
    0.00% - 3.99
    %
    
    Up to 2010    
    
    
    2,921
    
    
    
    
    
    
    
    
    
    
    
    2011 - 2019
    
    
    
    1,959
    
    
    
    1,406
    
    
    
    
    
    
    
    4.00% - 4.99
    %
    
    Up to 2010    
    
    
    82
    
    
    
    1,476
    
    
    
    
    
    
    
    2020 - 2029
    
    
    
    1,469
    
    
    
    1,063
    
    
    
    
    
    
    
    5.00% - 7.99
    %
    
    
    2020 - 2029
    
    
    
    2,887
    
    
    
    3,887
    
    
    
    
    
    
    
    2030-2040
    
    
    
    2,590
    
    
    
    2,679
    
    
    
    
    
    
    
    US dollar
    
    
    0.00% - 3.99
    %
    
    Up to 2010    
    
    
    8,430
    
    
    
    1,496
    
    
    
    
    
    
    
    4.00% - 6.87
    %
    
    Up to 2010    
    
    
    595
    
    
    
    5,351
    
    
    
    
    
    
    
    2011 - 2019
    
    
    
    
    
    
    
    1,102
    
    
    
    
    
    
    
    2020 - 2029
    
    
    
    4,340
    
    
    
    4,509
    
    
    
    
    
    
    
    2030-2040
    
    
    
    4,916
    
    
    
    3,831
    
    
    
    
    
    
    
    7.00% - 8.99
    %
    
    Up to 2010    
    
    
    221
    
    
    
    
    
    
    
    
    
    
    
    2011 to 2040
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    Pounds sterling
    
    
    0.00% - 4.99
    %
    
    Up to 2010    
    
    
    882
    
    
    
    
    
    
    
    
    
    
    
    2011 - 2019
    
    
    
    984
    
    
    
    
    
    
    
    
    
    
    
    5.00% - 5.99
    %
    
    Up to 2010    
    
    
    2,428
    
    
    
    378
    
    
    
    
    
    
    
    6.00% - 6.87
    %
    
    Up to 2010    
    
    
    771
    
    
    
    776
    
    
    
    
    
    
    
    2011 - 2019
    
    
    
    881
    
    
    
    1,439
    
    
    
    
    
    
    
    2020 - 2029
    
    
    
    856
    
    
    
    1,469
    
    
    
    
    
    
    
    2030 - 2040
    
    
    
    3,545
    
    
    
    4,408
    
    
    
    
    
    
    
    7.00% - 8.99
    %
    
    
    2011 - 2040
    
    
    
    73
    
    
    
    113
    
    
    
    
    
    
    
    Other currencies
    
    
    0.00% - 3.99
    %
    
    
    2020 - 2029
    
    
    
    337
    
    
    
    
    
    
    
    
    
    
    
    6.00% - 6.87
    %
    
    
    2011 - 2019
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    2020 - 2029
    
    
    
    
    
    
    
    294
    
    
    
    
    
    
    
    41,178
    
    
    
    35,712
    
    
    
    
    
    
    
    
  114




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 32. Other borrowed funds
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £m£300m Step Up Callable Perpetual Reserve Capital Instruments
    
    
    356
    
    
    
    308
    
    
    
    356
    
    
    
    308£175m Fixed/Floating Rate Tier One Preferred Income Capital Securities
    
    
    205
    
    
    
    182
    
    
    
    205
    
    
    
    182$1,000m Non-Cumulative Trust Preferred Securities
    
    
    1,171
    
    
    
    585
    
    
    
    
    
    
    
    £325m Sterling Preference Shares
    
    
    344
    
    
    
    344
    
    
    
    344
    
    
    
    3442,076
    
    
    
    1,419
    
    
    
    905
    
    
    
    834
 £300m Step-up Callable Perpetual Reserve Capital Instruments
 £175m Fixed/Floating Rate Tier One Preferred Income Capital Securities
   pari passu
 $1,000m Non-Cumulative Trust Preferred Securities
    115




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 £325m Sterling Preference Shares
 Size of shareholding
    
    Shareholders
    
    
    Preference shares of £1 each1-100
    
    
    4
    
    
    
    284101-1,000
    
    
    50
    
    
    
    37,1731,001+
    
    
    1,887
    
    
    
    324,962,5431,941
    
    
    
    325,000,000
 pari passu pari passu
   33. Subordinated liabilities
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mDated subordinated liabilities:5.00% Subordinated bond 2009 (511.3m)
    
    
    515
    
    
    
    393
    
    
    
    515
    
    
    
    3934.625% Subordinated notes 2011 (500m)
    
    
    515
    
    
    
    378
    
    
    
    515
    
    
    
    37810.125% Subordinated guaranteed bond 2023
    
    
    231
    
    
    
    212
    
    
    
    
    
    
    
    11.50% Subordinated guaranteed bond 2017
    
    
    238
    
    
    
    220
    
    
    
    
    
    
    
    11.59% Subordinated loan stock 2017
    
    
    
    
    
    
    
    
    
    
    221
    
    
    
    20310.18% Subordinated loan stock 2023
    
    
    
    
    
    
    
    
    
    
    217
    
    
    
    1987.57% Subordinated notes 2029 (US$1,000m)
    
    
    1,142
    
    
    
    588
    
    
    
    1,142
    
    
    
    5886.50% Subordinated notes 2030
    
    
    194
    
    
    
    164
    
    
    
    194
    
    
    
    1648.9% Subordinated notes 2030 (US$1,000m)
    
    
    
    
    
    
    
    
    
    
    1,170
    
    
    
    5865.25% Subordinated notes 2015
    
    
    215
    
    
    
    206
    
    
    
    215
    
    
    
    206Subordinated floating rate EURIBOR notes 2015
    
    
    485
    
    
    
    370
    
    
    
    485
    
    
    
    370Subordinated floating rate EURIBOR notes 2016
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    653,535
    
    
    
    2,531
    
    
    
    4,739
    
    
    
    3,151Undated subordinated liabilities:10.0625% Exchangeable subordinated capital securities
    
    
    204
    
    
    
    204
    
    
    
    204
    
    
    
    2046.70% Perpetual subordinated reset capital securities (US$500m)
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    2525.56% Subordinated guaranteed notes (YEN 15,000m)
    
    
    143
    
    
    
    84
    
    
    
    143
    
    
    
    845.50% Subordinated guaranteed notes (YEN 5,000m)
    
    
    47
    
    
    
    28
    
    
    
    47
    
    
    
    28Fixed/Floating rate subordinated notes (YEN 5,000m)
    
    
    45
    
    
    
    26
    
    
    
    45
    
    
    
    267.50% 10 Year step-up perpetual subordinated notes
    
    
    354
    
    
    
    342
    
    
    
    354
    
    
    
    3427.50% 15 Year step-up perpetual subordinated notes
    
    
    514
    
    
    
    465
    
    
    
    514
    
    
    
    4657.38% 20 Year step-up perpetual subordinated notes
    
    
    223
    
    
    
    198
    
    
    
    223
    
    
    
    1987.13% 30 Year step-up perpetual subordinated notes
    
    
    348
    
    
    
    293
    
    
    
    348
    
    
    
    2937.13% Fixed to floating rate perpetual subordinated notes
    
    
    413
    
    
    
    309
    
    
    
    413
    
    
    
    3092,291
    
    
    
    2,201
    
    
    
    2,291
    
    
    
    2,201Total subordinated liabilities
    
    
    5,826
    
    
    
    4,732
    
    
    
    7,030
    
    
    
    5,352
   116




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
            Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mIn no more than 3 months
    
    
    515
    
    
    
    
    
    
    
    515
    
    
    
    In more than 3 months but no more than 1 year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    In more than 1 year but no more than 5 years
    
    
    515
    
    
    
    771
    
    
    
    515
    
    
    
    771In more than 5 years
    
    
    2,504
    
    
    
    1,760
    
    
    
    3,709
    
    
    
    2,380Undated
    
    
    2,291
    
    
    
    2,201
    
    
    
    2,291
    
    
    
    2,2015,825
    
    
    
    4,732
    
    
    
    7,030
    
    
    
    5,352
 34. Other liabilities
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mTrade and other payables
    
    
    1,762
    
    
    
    2,271
    
    
    
    1,283
    
    
    
    1,452Deferred income
    
    
    8
    
    
    
    66
    
    
    
    
    
    
    
    1,770
    
    
    
    2,337
    
    
    
    1,283
    
    
    
    1,452
 35. Provisions
 GroupMisselling
    
    
    Other
    
    
    Total£m
    
    
    £m
    
    
    £mAt 1 January 2008
    
    
    95
    
    
    
    36
    
    
    
    131Disposal of subsidiary undertakings
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Additional provisions
    
    
    
    
    
    
    58
    
    
    
    58Provisions released
    
    
    (40
    )
    
    
    (1
    )
    
    
    (41
    )Used during the year
    
    
    (14
    )
    
    
    (25
    )
    
    
    (39
    )At 31 December 2008
    
    
    41
    
    
    
    66
    
    
    
    107
 Misselling
    
    
    Other
    
    
    TotalTo be settled:
    
    £m
    
    
    £m
    
    
    £mWithin 12 months
    
    
    36
    
    
    
    63
    
    
    
    99In more than 12 months
    
    
    5
    
    
    
    3
    
    
    
    841
    
    
    
    66
    
    
    
    107
 CompanyMisselling
    
    
    Other
    
    
    Total£m
    
    
    £m
    
    
    £mAt 1 January 2008
    
    
    95
    
    
    
    5
    
    
    
    100Additional provisions
    
    
    
    
    
    
    56
    
    
    
    56Provisions released
    
    
    (39
    )
    
    
    
    
    
    
    (39
    )Used during the year
    
    
    (14
    )
    
    
    (4
    )
    
    
    (18
    )At 31 December 2008
    
    
    42
    
    
    
    57
    
    
    
    99
 117




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Misselling
    
    
    Other
    
    
    TotalTo be settled:
    
    £m
    
    
    £m
    
    
    £mWithin 12 months
    
    
    37
    
    
    
    57
    
    
    
    94In more than 12 months
    
    
    5
    
    
    
    
    
    
    
    542
    
    
    
    57
    
    
    
    99
 GroupMisselling
    
    
    Other
    
    
    Total£m
    
    
    £m
    
    
    £mAt 1 January 2007
    
    
    153
    
    
    
    27
    
    
    
    180Additional provisions
    
    
    
    
    
    
    1
    
    
    
    1Provisions released
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Used during the year
    
    
    (58
    )
    
    
    (7
    )
    
    
    (65
    )Reclassifications
    
    
    
    
    
    
    16
    
    
    
    16At 31 December 2007
    
    
    95
    
    
    
    36
    
    
    
    131
 Misselling
    
    
    Other
    
    
    TotalTo be settled:
    
    £m
    
    
    £m
    
    
    £mWithin 12 months
    
    
    55
    
    
    
    26
    
    
    
    81In more than 12 months
    
    
    40
    
    
    
    10
    
    
    
    5095
    
    
    
    36
    
    
    
    131
 CompanyMisselling
    
    
    Other
    
    
    Total£m
    
    
    £m
    
    
    £mAt 1 January 2007
    
    
    151
    
    
    
    6
    
    
    
    157Used during the year
    
    
    (56
    )
    
    
    (1
    )
    
    
    (57
    )At 31 December 2007
    
    
    95
    
    
    
    5
    
    
    
    100
 Misselling
    
    
    Other
    
    
    TotalTo be settled:
    
    £m
    
    
    £m
    
    
    £mWithin 12 months
    
    
    55
    
    
    
    1
    
    
    
    56In more than 12 months
    
    
    40
    
    
    
    4
    
    
    
    4495
    
    
    
    5
    
    
    
    100
    36. Retirement benefit obligations
 Defined Contribution Pension schemes
  Defined Benefit Pension schemes
  118




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
    Group
    
    
    Company2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCurrent service cost
    
    
    55
    
    
    
    67
    
    
    
    92
    
    
    
    42
    
    
    
    57
    
    
    
    76Past service cost
    
    
    16
    
    
    
    14
    
    
    
    16
    
    
    
    16
    
    
    
    14
    
    
    
    15Gain on settlements or curtailments
    
    
    (2
    )
    
    
    (10
    )
    
    
    (69
    )
    
    
    (2
    )
    
    
    (10
    )
    
    
    (69
    )Expected return on pension scheme assets
    
    
    (237
    )
    
    
    (194
    )
    
    
    (180
    )
    
    
    (236
    )
    
    
    (192
    )
    
    
    (168
    )Interest cost
    
    
    264
    
    
    
    220
    
    
    
    211
    
    
    
    262
    
    
    
    220
    
    
    
    19796
    
    
    
    97
    
    
    
    70
    
    
    
    82
    
    
    
    89
    
    
    
    51
  Group2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mPresent value of defined benefit obligation
    
    
    (3,955
    )
    
    
    (4,581
    )
    
    
    (4,264
    )
    
    
    (4,354
    )
    
    
    (3,686
    )Fair value of plan assets
    
    
    3,159
    
    
    
    3,602
    
    
    
    3,230
    
    
    
    2,974
    
    
    
    2,489Unfunded benefit obligation
    
    
    (796
    )
    
    
    (979
    )
    
    
    (1,034
    )
    
    
    (1,380
    )
    
    
    (1,197
    )
 Company2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mPresent value of defined benefit obligation
    
    
    (3,944
    )
    
    
    (4,559
    )
    
    
    (4,241
    )
    
    
    (3,822
    )
    
    
    (3,229
    )Fair value of plan assets
    
    
    3,147
    
    
    
    3,577
    
    
    
    3,208
    
    
    
    2,582
    
    
    
    2,169Unfunded benefit obligation
    
    
    (797
    )
    
    
    (982
    )
    
    
    (1,033
    )
    
    
    (1,240
    )
    
    
    (1,060
    )
  Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mBalance at 1 January
    
    
    (4,581
    )
    
    
    (4,264
    )
    
    
    (4,559
    )
    
    
    (4,241
    )Current service cost
    
    
    (55
    )
    
    
    (67
    )
    
    
    (42
    )
    
    
    (65
    )Interest cost
    
    
    (264
    )
    
    
    (220
    )
    
    
    (262
    )
    
    
    (220
    )Employee contributions
    
    
    (7
    )
    
    
    (8
    )
    
    
    (7
    )
    
    
    (8
    )Past service cost
    
    
    (16
    )
    
    
    (14
    )
    
    
    (16
    )
    
    
    (14
    )Actuarial (loss)/gain
    
    
    818
    
    
    
    (138
    )
    
    
    793
    
    
    
    (140
    )Actual benefit payments
    
    
    148
    
    
    
    120
    
    
    
    147
    
    
    
    119Settlement/curtailment
    
    
    2
    
    
    
    10
    
    
    
    2
    
    
    
    10Balance at 31 December
    
    
    (3,955
    )
    
    
    (4,581
    )
    
    
    (3,944
    )
    
    
    (4,559
    )
  Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mBalance at 1 January
    
    
    3,602
    
    
    
    3,230
    
    
    
    3,577
    
    
    
    3,208Expected return on scheme assets
    
    
    237
    
    
    
    194
    
    
    
    236
    
    
    
    192Actuarial gain/(loss) on scheme assets
    
    
    (862
    )
    
    
    33
    
    
    
    (836
    )
    
    
    32Company contributions paid (regular)
    
    
    307
    
    
    
    243
    
    
    
    294
    
    
    
    242Company contributions paid (special)
    
    
    16
    
    
    
    14
    
    
    
    16
    
    
    
    14Employee contributions
    
    
    7
    
    
    
    8
    
    
    
    7
    
    
    
    8Actual benefit payments
    
    
    (148
    )
    
    
    (120
    )
    
    
    (147
    )
    
    
    (119
    )Balance at 31 December
    
    
    3,159
    
    
    
    3,602
    
    
    
    3,147
    
    
    
    3,577
  119




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
  Group2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mExperience gain on scheme liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Actuarial (gain)/loss on scheme liabilities
    
    
    (818
    )
    
    
    146
    
    
    
    (228
    )
    
    
    436
    
    
    
    164Actuarial (gain)/loss on scheme assets
    
    
    862
    
    
    
    (33
    )
    
    
    9
    
    
    
    (282
    )
    
    
    (107
    )44
    
    
    
    113
    
    
    
    (219
    )
    
    
    154
    
    
    
    70
 Company2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mExperience gain on scheme liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    10Actuarial (gain)/loss on scheme liabilities
    
    
    (793
    )
    
    
    148
    
    
    
    (180
    )
    
    
    387
    
    
    
    133Actuarial (gain)/loss on scheme assets
    
    
    836
    
    
    
    (32
    )
    
    
    
    
    
    
    (242
    )
    
    
    (94
    )43
    
    
    
    116
    
    
    
    (180
    )
    
    
    152
    
    
    
    49
    Nominal per annum2008
    
    
    2007
    
    
    2006%
    
    
    %
    
    
    %To determine benefit obligations:-Discount rate for scheme liabilities
    
    
    6.4
    
    
    
    5.8
    
    
    
    5.2- General salary increase
    
    
    3.5
    
    
    
    4.0
    
    
    
    4.0- General price inflation
    
    
    3.0
    
    
    
    3.5
    
    
    
    3.0- Expected rate of pension increase
    
    
    3.0
    
    
    
    3.5
    
    
    
    3.0- Expected rate of return on plan assets at the start of the year
    
    
    6.7
    
    
    
    6.1
    
    
    
    6.0To determine net periodic benefit cost:- Discount rate
    
    
    5.8
    
    
    
    5.2
    
    
    
    4.85- Expected rate of pension increase
    
    
    3.5
    
    
    
    3.0
    
    
    
    2.8- Expected rate of return on plan assets
    
    
    6.7
    
    
    
    6.1
    
    
    
    6.0
   >
    
    To maintain a portfolio of suitable assets of appropriate quality,
suitability and liquidity which will generate income and capital
growth to meet, together with new contributions from members and the
employers, the cost of current and future benefits which the pension
scheme provides, as set out in the trust deed and rules.
 >
    
    To limit the risk of the assets failing to meet the liabilities, over
the long-term and on a shorter-term basis as required by prevailing
legislation.
 >
    
    To minimise the long-term costs of the pension scheme by maximising
the return on the assets whilst having regard to the objectives shown
above.
    2008
    
    
    2007%
    
    
    %UK equities
    
    
    20
    
    
    
    24Overseas equities
    
    
    19
    
    
    
    20Corporate bonds
    
    
    29
    
    
    
    30Government Fixed Interest
    
    
    16
    
    
    
    12Government Index Linked
    
    
    13
    
    
    
    10Others
    
    
    3
    
    
    
    4100
    
    
    
    100
 120




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
  Year ending 31 December:
    
    £m2009
    
    
    1532010
    
    
    1652011
    
    
    1782012
    
    
    1912013
    
    
    206Five years ended 2018
    
    
    1,290
   37. Contingent liabilities and commitments
  Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mGuarantees given to subsidiaries
    
    
    
    
    
    
    
    
    
    
    105,022
    
    
    
    101,785Guarantees given to third parties
    
    
    369
    
    
    
    3,589
    
    
    
    
    
    
    
    Formal standby facilities, credit lines and other commitments with original term to maturity of:- One year or less
    
    
    1,883
    
    
    
    1,928
    
    
    
    1,883
    
    
    
    1,925- More than one year
    
    
    6,672
    
    
    
    5,392
    
    
    
    3,688
    
    
    
    3,1508,924
    
    
    
    10,909
    
    
    
    110,593
    
    
    
    106,860
 Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2006£m
    
    
    £m
    
    
    £m
    
    
    £mOther contingent liabilities
    
    
    8
    
    
    
    8
    
    
    
    8
    
    
    
    8
 Unauthorised overdraft fees
     121




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
   Financial Services Compensation Scheme
    Overseas tax claim
  Regulatory
  Other
  Obligations under stock borrowing and lending agreements
  Other off-balance sheet commitments
  122




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Operating lease commitments
 Group
    
    
    Company£m
    
    
    £mRental commitments under operating leases expiring:- No later than 1 year
    
    
    104
    
    
    
    98- Later than 1 year but no later than 5 years
    
    
    396
    
    
    
    369- Later than 5 years
    
    
    597
    
    
    
    5491,097
    
    
    
    1,016
  Group
    
    
    CompanyYear ended 31 December:
    
    £m
    
    
    £m2009
    
    
    104
    
    
    
    982010
    
    
    105
    
    
    
    992011
    
    
    106
    
    
    
    1002012
    
    
    100
    
    
    
    932013
    
    
    85
    
    
    
    78Total thereafter
    
    
    597
    
    
    
    549
   Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mIn respect of minimum rentals
    
    
    95
    
    
    
    96
    
    
    
    105Less: sub-lease rentals
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    96
    
    
    
    105
 Associates
   38. Share capital
 Ordinary shares of
    
    
    Preference shares
    
    
    Preference shares
    
    
    Preference shares10 pence each
    
    
    of £1 each
    
    
    of US $0.01 each
    
    
    of Euro0.01 each
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mShare capitalAuthorised share capitalAt 1 January 2008
    
    
    175
    
    
    
    1,000
    
    
    
    6
    
    
    
    6
    
    
    
    1,187Increase
    
    
    2,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,300At 31 December 2008
    
    
    2,475
    
    
    
    1,000
    
    
    
    6
    
    
    
    6
    
    
    
    3,487At 1 January and 31 December 2007
    
    
    175
    
    
    
    1,000
    
    
    
    6
    
    
    
    6
    
    
    
    1,187Issued and fully paid share capitalAt 1 January 2008
    
    
    148
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    473Shares issued
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000At 31 December 2008
    
    
    1,148
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    1,473At 1 January and 31 December 2007
    
    
    148
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    473Share premium accountAt 1 January 2008
    
    
    1,857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,857Shares issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    At 31 December 2008
    
    
    1,857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,857At 1 January and 31 December 2007
    
    
    1,857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,857
  123




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
   39. Retained earnings and minority interest
  Group
    
    
    Company2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 January
    
    
    1,339
    
    
    
    1,111
    
    
    
    586
    
    
    
    694Profit for the year
    
    
    811
    
    
    
    685
    
    
    
    1,328
    
    
    
    351Post-tax actuarial movement on defined benefit pension schemes
    
    
    (33
    )
    
    
    (98
    )
    
    
    (31
    )
    
    
    (100
    )Gains/(losses) on available for sale securities
    
    
    5
    
    
    
    13
    
    
    
    (4
    )
    
    
    12Gains on available for sale securities transferred to profit or loss on sale
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Exchange differences on translation of foreign operations
    
    
    28
    
    
    
    (1
    )
    
    
    
    
    
    
    Equity dividends proposed
    
    
    (450
    )
    
    
    (370
    )
    
    
    (450
    )
    
    
    (370
    )At 31 December
    
    
    1,700
    
    
    
    1,339
    
    
    
    1,429
    
    
    
    586
   Group2008
    
    
    2007£m
    
    
    £mAt 1 January
    
    
    98
    
    
    
    Share of profit
    
    
    8
    
    
    
    98At 31 December
    
    
    106
    
    
    
    98
  Group
    
    
    Company2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2006Pence per
    
    
    Pence per
    
    
    Pence per
    
    
    Pence per
    
    
    Pence per
    
    
    Pence perShare
    
    
    Share
    
    
    Share
    
    
    Share
    
    
    Share
    
    
    ShareOrdinary shares (equity):2006 interim
    
    
    
    
    
    
    
    
    
    
    13.93
    
    
    
    
    
    
    
    
    
    
    
    13.932007 interim
    
    
    13.46
    
    
    
    
    
    
    
    
    
    
    
    13.46
    
    
    
    
    
    
    
    2007 interim
    
    
    11.44
    
    
    
    
    
    
    
    
    
    
    
    11.44
    
    
    
    
    
    
    
    July 2008 interim
    
    
    15.14
    
    
    
    
    
    
    
    
    
    
    
    15.14
    
    
    
    
    
    
    
    40.04
    
    
    
    
    
    
    
    13.93
    
    
    
    40.04
    
    
    
    
    
    
    
    13.93
 40. Cash flow statement
 a) Reconciliation of profit/(loss) before tax to net cash inflow/(outflow) from operating
activities:
 Group
    
    
    Company2008
    
    
    2007(1)
    
    
    2006(1)
    
    
    2008
    
    
    2007(1)
    
    
    2006(1)£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mProfit/(loss) for the year
    
    
    819
    
    
    
    685
    
    
    
    68
    
    
    
    1,328
    
    
    
    351
    
    
    
    (128
    )Non-cash items included in net profit(Increase)/decrease in prepayments and accrued income
    
    
    (126
    )
    
    
    (105
    )
    
    
    (91
    )
    
    
    (902
    )
    
    
    (353
    )
    
    
    (91
    )Increase/(decrease) in accruals and deferred income
    
    
    346
    
    
    
    531
    
    
    
    176
    
    
    
    1,260
    
    
    
    411
    
    
    
    (64
    )Depreciation and amortisation
    
    
    202
    
    
    
    205
    
    
    
    217
    
    
    
    81
    
    
    
    72
    
    
    
    79(Profit)/loss on sale of subsidiary and associated undertakings
    
    
    (40
    )
    
    
    
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    Amortisation of premiums/(discounts) on debt securities
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in value of in-force Life Assurance Business
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    Provisions for liabilities and charges
    
    
    17
    
    
    
    
    
    
    
    63
    
    
    
    16
    
    
    
    
    
    
    
    159Provision for impairment
    
    
    394
    
    
    
    388
    
    
    
    413
    
    
    
    302
    
    
    
    346
    
    
    
    375Other non-cash items
    
    
    525
    
    
    
    288
    
    
    
    28
    
    
    
    1,281
    
    
    
    (30
    )
    
    
    (207
    )2,116
    
    
    
    1,992
    
    
    
    1,193
    
    
    
    3,366
    
    
    
    797
    
    
    
    123
 124




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Group
    
    
    Company2008
    
    
    2007(1)
    
    
    2006(1)
    
    
    2008
    
    
    2007(1)
    
    
    2006(1)Changes in operating assets and liabilities
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet decrease/(increase) in trading assets
    
    
    8,965
    
    
    
    (695
    )
    
    
    (938
    )
    
    
    
    
    
    
    
    
    
    
    Net (increase)/decrease in derivative assets
    
    
    (22,330
    )
    
    
    (1,615
    )
    
    
    2,512
    
    
    
    (2,046
    )
    
    
    (43
    )
    
    
    581Net decrease/(increase) in financial assets designated at fair value
    
    
    469
    
    
    
    (3,107
    )
    
    
    (933
    )
    
    
    (39,863
    )
    
    
    (7,434
    )
    
    
    724Net (increase)/decrease in loans and advances to banks and customers
    
    
    (27,893
    )
    
    
    (8,908
    )
    
    
    (9,914
    )
    
    
    (38,835
    )
    
    
    (1,641
    )
    
    
    (20,801
    )Net (increase)/decrease in other assets
    
    
    (189
    )
    
    
    1,914
    
    
    
    (360
    )
    
    
    108
    
    
    
    357
    
    
    
    (166
    )Net (increase/decrease in deferred acquisition costs
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Net increase/(decrease) in deposits by banks and deposits by customers
    
    
    4,182
    
    
    
    4,104
    
    
    
    2,344
    
    
    
    123,614
    
    
    
    13,813
    
    
    
    13,809Net increase/(decrease) in derivative liabilities
    
    
    16,378
    
    
    
    (287
    )
    
    
    (1,046
    )
    
    
    4,342
    
    
    
    370
    
    
    
    58Net (decrease)/increase in trading liabilities
    
    
    (14,054
    )
    
    
    (2,850
    )
    
    
    4,834
    
    
    
    739
    
    
    
    
    
    
    
    Net (decrease)/increase in financial liabilities designated at fair value
    
    
    (2,591
    )
    
    
    (619
    )
    
    
    679
    
    
    
    
    
    
    
    
    
    
    
    Net decrease in insurance contract liabilities
    
    
    
    
    
    
    
    
    
    
    (1,832
    )
    
    
    
    
    
    
    
    
    
    
    Net decrease in investment contract liabilities
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    Net increase/(decrease) in debt issued
    
    
    5,027
    
    
    
    368
    
    
    
    5,879
    
    
    
    
    
    
    
    (3
    )
    
    
    Net (decrease)/increase in other liabilities
    
    
    (807
    )
    
    
    (20
    )
    
    
    (675
    )
    
    
    (586
    )
    
    
    (315
    )
    
    
    (134
    )Effects of exchange rate differences
    
    
    8,569
    
    
    
    396
    
    
    
    (1,196
    )
    
    
    897
    
    
    
    
    
    
    
    (108
    )Net cash flow (used in)/from operating activities before tax
    
    
    (22,158
    )
    
    
    (9,327
    )
    
    
    491
    
    
    
    51,736
    
    
    
    5,901
    
    
    
    (5,914
    )Income tax received/(paid)
    
    
    43
    
    
    
    (5
    )
    
    
    (60
    )
    
    
    80
    
    
    
    48
    
    
    
    56Net cash flow (used in)/from operating activities
    
    
    (22,115
    )
    
    
    (9,332
    )
    
    
    431
    
    
    
    51,816
    
    
    
    5,949
    
    
    
    (5,858
    )
 (1)
    
    Amended for the change in accounting policy for cash equivalents described in the Accounting
Policies on page 85.
 b) Analysis of the balances of cash and cash equivalents in the balance sheet
 Group
    
    
    Company2008
    
    
    2007(1)
    
    
    2006(1)
    
    
    2008
    
    
    2007(1)
    
    
    2006(1)£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCash and balances with central banks
    
    
    2,464
    
    
    
    1,038
    
    
    
    888
    
    
    
    2,456
    
    
    
    1,032
    
    
    
    888Debt securities
    
    
    5,208
    
    
    
    5,819
    
    
    
    8,026
    
    
    
    
    
    
    
    
    
    
    
    Net trading other cash equivalents
    
    
    5,479
    
    
    
    24,989
    
    
    
    29,644
    
    
    
    
    
    
    
    
    
    
    
    Net non trading other cash equivalents
    
    
    12,155
    
    
    
    2,210
    
    
    
    524
    
    
    
    58,747
    
    
    
    9,562
    
    
    
    4,319Cash and cash equivalents
    
    
    25,306
    
    
    
    34,056
    
    
    
    39,082
    
    
    
    61,203
    
    
    
    10,594
    
    
    
    5,207
 (1)
    
    Amended for the change in accounting policy for cash equivalents described in the
Accounting Policies on page 85.
 c) Sale of subsidiaries and businesses
 Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mNet assets disposed of:Derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    1,007Financial assets designated at fair value
    
    
    
    
    
    
    
    
    
    
    24,130Loans and advances to banks
    
    
    
    
    
    
    
    
    
    
    1,329Loans and advances to customers
    
    
    
    
    
    
    
    
    
    
    19Value of in force business
    
    
    
    
    
    
    
    
    
    
    1,625Operating lease assets
    
    
    2,134
    
    
    
    
    
    
    
    Current tax accounts
    
    
    8
    
    
    
    
    
    
    
    4Deferred tax asset
    
    
    
    
    
    
    
    
    
    
    1Other assets
    
    
    60
    
    
    
    
    
    
    
    1,903Deposits by banks
    
    
    (8
    )
    
    
    
    
    
    
    (609
    )Deposits by customers
    
    
    
    
    
    
    
    
    
    
    (3
    )Financial liabilities designated at fair value
    
    
    
    
    
    
    
    
    
    
    (544
    )Debt securities in issue
    
    
    
    
    
    
    
    
    
    
    (67
    )Subordinated liabilities
    
    
    
    
    
    
    
    
    
    
    (334
    )Insurance and reinsurance liabilities
    
    
    
    
    
    
    
    
    
    
    (19,647
    )Other liabilities
    
    
    (163
    )
    
    
    
    
    
    
    (1,151
    )Investment contract liabilities
    
    
    
    
    
    
    
    
    
    
    (3,253
    )Other provisions
    
    
    (2
    )
    
    
    
    
    
    
    Current tax liabilities
    
    
    (19
    )
    
    
    
    
    
    
    (34
    )Deferred tax liabilities
    
    
    (446
    )
    
    
    
    
    
    
    (406
    )Retirement benefit obligations
    
    
    1
    
    
    
    
    
    
    
    (2
    )1,565
    
    
    
    
    
    
    
    3,968Profit/ (loss) on disposal
    
    
    40
    
    
    
    
    
    
    
    (223
    )1,605
    
    
    
    
    
    
    
    3,745Satisfied by:Cash and cash equivalents
    
    
    1,605
    
    
    
    
    
    
    
    3,745Less: Cash and cash equivalents in subsidiary sold
    
    
    
    
    
    
    
    
    
    
    (4,110
    )Net cash inflow of sale
    
    
    1,605
    
    
    
    
    
    
    
    (365
    )
 125




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
   d) Acquisitions of subsidiaries and businesses
 Group2008Net assets acquired:
    
    £mCash and balances at central banks
    
    
    18,613Loans and advances to banks
    
    
    1,624Available for sale securities
    
    
    3Other intangible assets
    
    
    4Property, plant and equipment
    
    
    44Other assets
    
    
    428Customer accounts
    
    
    (20,434
    )Other liabilities
    
    
    (7
    )Current tax liabilities
    
    
    (4
    )Net identified assets and liabilities
    
    
    271Goodwill
    
    
    341Consideration
    
    
    612Satisfied by:Cash and cash equivalents
    
    
    612Less: Cash and cash equivalents in businesses acquired
    
    
    (18,613
    )Net cash (inflow) acquired
    
    
    (18,001
    )
  e) Discontinued operations
  41. Collateral pledged and received
       126




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
   42. Share-based compensation
     2008
    
    
    2007
    
    
    2006Risk free interest rate
    
    
    2.9%-6.5
    %
    
    
    5.0%-5.8
    %
    
    
    4.5%-5.0
    %Dividend growth, based solely upon average growth since 1989
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %Volatility of underlying shares based upon historical volatility over five years
    
    
    20.2%-29.6
    %
    
    
    19.80%-26.90
    %
    
    
    17.70%-19.85
    %Expected lives of options granted under:- Employee Sharesave 3, 5 & 7 year schemes
    
    3, 5 & 7 years
    
    3, 5 & 7 years
    
    3, 5 & 7 years- Executive Share Option scheme
    
    10 years
    
    10 years
    
    10 years- Medium term incentive plan
    
    
    
    
    
    3 years
    
    3 years- Long term incentive plans
    
    3 years
    
    3 years
    
    
    
  127




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
  Executive Share Option scheme
    
    
    Employee Sharesave scheme
    
    
    Employee Share Option schemeWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageNumber of
    
    
    exercise
    
    
    Number of
    
    
    exercise
    
    
    Number of
    
    
    exerciseoptions
    
    
    price
    
    
    options
    
    
    price
    
    
    options
    
    
    price000s
    
    
    £
    
    
    000s
    
    
    £
    
    
    000s
    
    
    £2008Options outstanding at the start of the year
    
    
    144
    
    
    
    4.15
    
    
    
    5,684
    
    
    
    3.18
    
    
    
    
    
    
    
    Options granted during the year
    
    
    
    
    
    
    
    
    
    
    5,197
    
    
    
    7.69
    
    
    
    
    
    
    
    Options exercised during the year
    
    
    (11
    )
    
    
    4.14
    
    
    
    (4,507
    )
    
    
    3.07
    
    
    
    
    
    
    
    Options forfeited during the year
    
    
    (121
    )
    
    
    4.11
    
    
    
    (231
    )
    
    
    4.11
    
    
    
    
    
    
    
    Options expired during the year
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    8.07
    
    
    
    
    
    
    
    Options outstanding at the end of the year
    
    
    12
    
    
    
    4.54
    
    
    
    6,142
    
    
    
    7.00
    
    
    
    
    
    
    
    Options exercisable at the end of the year
    
    
    12
    
    
    
    4.54
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2007Options outstanding at the start of the year
    
    
    178
    
    
    
    4.11
    
    
    
    7,638
    
    
    
    3.32
    
    
    
    
    
    
    
    Options exercised during the year
    
    
    (34
    )
    
    
    3.96
    
    
    
    (1,501
    )
    
    
    3.81
    
    
    
    
    
    
    
    Options forfeited during the year
    
    
    
    
    
    
    
    
    
    
    (419
    )
    
    
    3.25
    
    
    
    
    
    
    
    Options expired during the year
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    5.92
    
    
    
    
    
    
    
    Options outstanding at the end of the year
    
    
    144
    
    
    
    4.15
    
    
    
    5,684
    
    
    
    3.18
    
    
    
    
    
    
    
    Options exercisable at the end of the year
    
    
    144
    
    
    
    4.15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2006Options outstanding at the start of the year
    
    
    270
    
    
    
    4.08
    
    
    
    13,799
    
    
    
    3.38
    
    
    
    54
    
    
    
    5.90Options exercised during the year
    
    
    (92
    )
    
    
    4.01
    
    
    
    (5,095
    )
    
    
    3.36
    
    
    
    (33
    )
    
    
    5.90Options forfeited during the year
    
    
    
    
    
    
    
    
    
    
    (897
    )
    
    
    3.42
    
    
    
    
    
    
    
    Options expired during the year
    
    
    
    
    
    
    
    
    
    
    (169
    )
    
    
    6.05
    
    
    
    (21
    )
    
    
    5.90Options outstanding at the end of the year
    
    
    178
    
    
    
    4.11
    
    
    
    7,638
    
    
    
    3.32
    
    
    
    
    
    
    
    Options exercisable at the end of the year
    
    
    178
    
    
    
    4.11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Executive Share Option scheme
  Options outstanding
    
    
    Options exercisableWeighted average
    
    
    Weighted average
    
    
    
    
    
    
    Weighted averageNumber
    
    
    remaining contractual life
    
    
    exercise price
    
    
    Number
    
    
    exercise priceRange of exercise prices
    
    000s
    
    
    years
    
    
    £
    
    
    000s
    
    
    £Between £3 and £4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Between £4 and £5
    
    
    12
    
    
    
    5
    
    
    
    4.54
    
    
    
    12
    
    
    
    4.54
  Options outstanding
    
    
    Options exercisableWeighted average
    
    
    Weighted average
    
    
    
    
    
    
    Weighted averageNumber
    
    
    remaining contractual life
    
    
    exercise price
    
    
    Number
    
    
    exercise priceRange of exercise prices
    
    000s
    
    
    years
    
    
    £
    
    
    000s
    
    
    £Between £3 and £4
    
    
    70
    
    
    
    5
    
    
    
    3.73
    
    
    
    70
    
    
    
    3.73Between £4 and £5
    
    
    74
    
    
    
    6
    
    
    
    4.54
    
    
    
    74
    
    
    
    4.54
 Employee Sharesave scheme
   Employee Share Option scheme
  128




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Medium Term Incentive Plan
  Number of awardsgranted2008
    
    000sConditional awards outstanding at the beginning of the year
    
    
    2,220Conditional awards granted during the year
    
    
    Conditional awards forfeited during the year
    
    
    (29
    )Conditional awards vested during the year
    
    
    (2,191
    )Conditional awards outstanding at the end of the year
    
    
    
 Number of awardsgranted2007
    
    000sConditional awards outstanding at the beginning of the year
    
    
    2,537Conditional awards forfeited during the year
    
    
    (317
    )Conditional awards outstanding at the end of the year
    
    
    2,220
  Long Term Incentive Plan
  Number of awardsgranted2008
    
    000sConditional awards outstanding at the beginning of the year
    
    
    3,092Conditional awards granted during the year
    
    
    1,803Conditional awards forfeited during the year
    
    
    (215
    )Conditional awards outstanding at the end of the year
    
    
    4,680
 Number of awardsgranted2007
    
    000sConditional awards outstanding at the beginning of the year
    
    
    Conditional awards granted during the year
    
    
    3,092Conditional awards forfeited during the year
    
    
    Conditional awards outstanding at the end of the year
    
    
    3,092
   43. Directors emoluments and interests
   Aggregate amountNumber of
    
    
    outstandingOther Key Management Personnel* - Loans
    
    persons
    
    
    £0002008
    
    
    2
    
    
    
    6472007
    
    
    1
    
    
    
    806
 *
    
    Other Key Management Personnel are defined as the Executive Committee of the Company and the
Board and Executive Committee of its parent company, Banco Santander, S.A. who served during
the year. The above excludes any overdraft facilities provided to Directors, other Key
Management Personnel and their connected persons in the ordinary course of business.
  129




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 44. Related party disclosures
 Transactions with Directors, Other Key Management Personnel and each of their connected persons
  Number of directors
    
    
    Amounts in respect of directors,and Other Key
    
    
    Other Key Management Personnel(1)Management
    
    
    and their connected persons2008
    
    Personnel(1)
    
    
    £000Secured loans, unsecured loans and overdraftsLoans outstanding at 1 January
    
    
    1
    
    
    
    806Net movements in the year
    
    
    4
    
    
    
    (159
    )Loans outstanding at 31 December
    
    
    5
    
    
    
    647Deposit, bank and instant access accounts and investmentsDeposits, bank instant access accounts and investments at 1 January
    
    
    12
    
    
    
    5,565Net movements in the year
    
    
    4
    
    
    
    (1,102
    )Deposit, bank and instant access accounts and investments at 31 December
    
    
    16
    
    
    
    4,463Life assurance policiesLife assurance policies at 1 January
    
    
    2
    
    
    
    1,600Net movements in the year
    
    
    (1
    )
    
    
    (574
    )Life assurance policies at 31 December
    
    
    1
    
    
    
    1,026
 Number of directors
    
    
    Amounts in respect of directors,and Other Key
    
    
    Other Key Management Personnel(1)Management
    
    
    and their connected persons2007
    
    Personnel(1)
    
    
    £000Secured loans, unsecured loans and overdraftsLoans outstanding at 1 January
    
    
    2
    
    
    
    1,281Net movements in the year
    
    
    (1
    )
    
    
    (475
    )Loans outstanding at 31 December
    
    
    1
    
    
    
    806Deposit, bank and instant access accounts and investmentsDeposits, bank instant access accounts and investments at 1 January
    
    
    14
    
    
    
    2,588Net movements in the year
    
    
    (2
    )
    
    
    2,977Deposit, bank and instant access accounts and investments at 31 December
    
    
    12
    
    
    
    5,565Life assurance policiesLife assurance policies at 1 January
    
    
    6
    
    
    
    1,515Net movements in the year
    
    
    (4
    )
    
    
    85Life assurance policies at 31 December
    
    
    2
    
    
    
    1,600
 (1)
    
    Other Key Management Personnel are defined as the Executive Committee of the Company and the
Board and Executive Committee of its parent company, Banco Santander, S.A., who served during
the year.
    Remuneration of Key Management Personnel
  2008
    
    
    2007
    
    
    2006Key management compensation
    
    £
    
    
    £
    
    
    £Short-term employee benefits
    
    
    13,016,060
    
    
    
    11,602,405
    
    
    
    15,076,922Post employment benefits
    
    
    306,902
    
    
    
    77,814
    
    
    
    89,753Other long term benefits
    
    
    
    
    
    
    
    
    
    
    Termination benefits
    
    
    
    
    
    
    
    
    
    
    548,692Share-based payments
    
    
    1,572,973
    
    
    
    1,101,786
    
    
    
    904,21714,895,935
    
    
    
    12,782,005
    
    
    
    16,619,584
 130




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Medium Term Incentive Plan
  Long Term Incentive Plan
  Parent undertaking and controlling party
  Transactions with related parties
  Interest, fees and
    
    
    Interest, fees and
    
    
    Amounts owed by
    
    
    Amounts owedother income received
    
    
    other expenses paid
    
    
    related parties
    
    
    to related parties2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mParent company
    
    
    (537
    )
    
    
    (293
    )
    
    
    (23
    )
    
    
    509
    
    
    
    327
    
    
    
    80
    
    
    
    11,021
    
    
    
    2,238
    
    
    
    (2,337
    )
    
    
    (7,388
    )Fellow subsidiaries
    
    
    (383
    )
    
    
    (171
    )
    
    
    (28
    )
    
    
    377
    
    
    
    24
    
    
    
    84
    
    
    
    6,065
    
    
    
    3,031
    
    
    
    (1,795
    )
    
    
    (351
    )Associates
    
    
    (23
    )
    
    
    (19
    )
    
    
    
    
    
    
    2
    
    
    
    5
    
    
    
    2
    
    
    
    10,125
    
    
    
    3
    
    
    
    (150
    )
    
    
    (8
    )(943
    )
    
    
    (483
    )
    
    
    (51
    )
    
    
    888
    
    
    
    356
    
    
    
    166
    
    
    
    27,211
    
    
    
    5,272
    
    
    
    (4,282
    )
    
    
    (7,747
    )
  Interest, fees and
    
    
    Interest, fees and
    
    
    Amounts owed by
    
    
    Amounts owedother income received
    
    
    other expenses paid
    
    
    related parties
    
    
    to related parties2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mParent company
    
    
    (55
    )
    
    
    (91
    )
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    1,004
    
    
    
    1,018
    
    
    
    (230
    )
    
    
    (373
    )Subsidiaries
    
    
    (6,654
    )
    
    
    (2,072
    )
    
    
    (1,611
    )
    
    
    8,312
    
    
    
    4,532
    
    
    
    3,592
    
    
    
    165,557
    
    
    
    39,464
    
    
    
    (198,369
    )
    
    
    (95,553
    )Fellow subsidiaries
    
    
    (261
    )
    
    
    (106
    )
    
    
    (3
    )
    
    
    253
    
    
    
    17
    
    
    
    61
    
    
    
    352
    
    
    
    13
    
    
    
    (320
    )
    
    
    (228
    )Associates
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334
    
    
    
    
    
    
    
    (2
    )
    
    
    (6,972
    )
    
    
    (2,269
    )
    
    
    (1,635
    )
    
    
    8,565
    
    
    
    4,549
    
    
    
    3,660
    
    
    
    167,247
    
    
    
    40,495
    
    
    
    (198,921
    )
    
    
    (96,154
    )
    131




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
   45. Events after the reporting period
   Book value£mLoans and advances to banks
    
    
    1,239Loans and advances to customers
    
    
    51,402Loans and receivables
    
    
    14,250Available for sale securities
    
    
    1,658Other assets
    
    
    6,699Deposits by banks
    
    
    (11,516
    )Deposits by customers
    
    
    (39,765
    )Debt securities in issue
    
    
    (17,477
    )Other liabilities
    
    
    (4,662
    )1,828
    46. Financial instruments
  Group2008
    
    Carrying value
    
    
    Fair value
    
    
    Surplus/(deficit)£m
    
    
    £m
    
    
    £mAssetsCash and balances at central banks
    
    
    2,464
    
    
    
    2,464
    
    
    
    Loans and advances to banks
    
    
    24,301
    
    
    
    24,426
    
    
    
    125Loans and advances to customers
    
    
    129,023
    
    
    
    133,856
    
    
    
    4,833LiabilitiesDeposits by banks
    
    
    3,337
    
    
    
    3,337
    
    
    
    Deposits by customers
    
    
    99,246
    
    
    
    99,758
    
    
    
    (512
    )Debt securities in issue
    
    
    41,178
    
    
    
    41,069
    
    
    
    109Other borrowed funds
    
    
    2,076
    
    
    
    926
    
    
    
    1,150Subordinated liabilities
    
    
    5,826
    
    
    
    4,201
    
    
    
    1,625
 132




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Company2008
    
    Carrying value
    
    
    Fair value
    
    
    Surplus/(deficit)£m
    
    
    £m
    
    
    £mAssetsCash and balances at central banks
    
    
    2,456
    
    
    
    2,456
    
    
    
    Loans and advances to banks
    
    
    116,486
    
    
    
    116,777
    
    
    
    291Loans and advances to customers
    
    
    123,319
    
    
    
    128,148
    
    
    
    4,829LiabilitiesDeposits by banks
    
    
    124,846
    
    
    
    126,612
    
    
    
    (1,766
    )Deposits by customers
    
    
    155,466
    
    
    
    156,016
    
    
    
    (550
    )Other borrowed funds
    
    
    905
    
    
    
    485
    
    
    
    420Subordinated liabilities
    
    
    7,030
    
    
    
    4,708
    
    
    
    2,322
 Group2007
    
    Carrying value
    
    
    Fair value
    
    
    Surplus/(deficit)£m
    
    
    £m
    
    
    £mAssetsCash and balances at central banks
    
    
    1,038
    
    
    
    1,038
    
    
    
    Loans and advances to banks
    
    
    3,441
    
    
    
    3,441
    
    
    
    Loans and advances to customers
    
    
    112,147
    
    
    
    112,824
    
    
    
    677LiabilitiesDeposits by banks
    
    
    7,923
    
    
    
    7,923
    
    
    
    Deposits by customers
    
    
    69,650
    
    
    
    69,754
    
    
    
    (104
    )Debt securities in issue
    
    
    35,712
    
    
    
    35,399
    
    
    
    313Other borrowed funds
    
    
    1,419
    
    
    
    1,620
    
    
    
    (201
    )Subordinated liabilities
    
    
    4,732
    
    
    
    4,698
    
    
    
    34
 Company2007
    
    Carrying value
    
    
    Fair value
    
    
    Surplus/(deficit)£m
    
    
    £m
    
    
    £mAssetsCash and balances at central banks
    
    
    1,032
    
    
    
    1,032
    
    
    
    Loans and advances to banks
    
    
    40,685
    
    
    
    40,685
    
    
    
    Loans and advances to customers
    
    
    110,976
    
    
    
    111,653
    
    
    
    677LiabilitiesDeposits by banks
    
    
    59,798
    
    
    
    60,019
    
    
    
    (221
    )Deposits by customers
    
    
    95,686
    
    
    
    95,791
    
    
    
    (105
    )Other borrowed funds
    
    
    834
    
    
    
    1,022
    
    
    
    (188
    )Subordinated liabilities
    
    
    5,352
    
    
    
    5,361
    
    
    
    (9
    )
  Fair value measurement
  Fair value management
  Assets:
 Cash and balances at central banks/Loans and advances to banks
  Loans and advances to customers
  a) Variable rate
  133




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 b) Fixed rate
  Liabilities:
 Deposits by banks
  Deposits by customers
  Debt securities in issue and subordinated liabilities
  Intra Group balances
  Net gains and losses on financial instruments
 Group2008
    
    
    2007
    
    
    2006£m
    
    
    £m
    
    
    £mFinancial assets and liabilities at fair value through profit or loss on initial recognition
    
    
    481
    
    
    
    (14
    )
    
    
    (73
    )Financial assets and liabilities held for trading
    
    
    (53
    )
    
    
    85
    
    
    
    430Loans and receivables
    
    
    7,754
    
    
    
    6,974
    
    
    
    5,599Available for sale
    
    
    33
    
    
    
    18
    
    
    
    1Financial liabilities held at amortised cost
    
    
    (6,093
    )
    
    
    (5,292
    )
    
    
    (4,388
    )2,122
    
    
    
    1,771
    
    
    
    1,569
 47. Capital management and resources
 Capital management and capital allocation
      Capital adequacy
  134




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Group Capital
 Basel II
    
    
    Basel I31 December 2008
    
    
    31 December 2007£m
    
    
    £mCore Tier 1 capital
    
    
    4,694
    
    
    
    3,808Deductions from Core Tier 1 capital
    
    
    (792
    )
    
    
    (90
    )Total Core Tier 1 capital after deductions
    
    
    3,902
    
    
    
    3,718Other Tier 1 capital
    
    
    1,485
    
    
    
    1,253Total Tier 1 capital after deductions
    
    
    5,387
    
    
    
    4,971Tier 2 capital
    
    
    4,766
    
    
    
    4,260Deductions from tier 2 capital
    
    
    (284
    )
    
    
    Total Tier 2 capital after deductions
    
    
    4,482
    
    
    
    4,260Deductions from Tier 1 and Tier 2
    
    
    (988
    )
    
    
    (1,434
    )Total Capital Resources
    
    
    8,881
    
    
    
    7,797
         48. Consolidating financial information
    135




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 Income statements
 The Company
    
    
    ANTS plc
    
    
    Other
    
    
    Adjustments
    
    
    ConsolidatedFor the year ended 31 December 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income
    
    
    1,185
    
    
    
    198
    
    
    
    391
    
    
    
    (2
    )
    
    
    1,772Fee, commission, net trading, and other income
    
    
    1,807
    
    
    
    180
    
    
    
    490
    
    
    
    (1,245
    )
    
    
    1,232Total operating income
    
    
    2,992
    
    
    
    378
    
    
    
    881
    
    
    
    (1,247
    )
    
    
    3,004Administration expenses
    
    
    (1,114
    )
    
    
    (136
    )
    
    
    (92
    )
    
    
    (1
    )
    
    
    (1,343
    )Depreciation and amortisation
    
    
    (81
    )
    
    
    (3
    )
    
    
    (118
    )
    
    
    
    
    
    
    (202
    )Impairment and provisions
    
    
    (343
    )
    
    
    (26
    )
    
    
    27
    
    
    
    (23
    )
    
    
    (365
    )Profit/(loss) on continuing operations before tax
    
    
    1,454
    
    
    
    213
    
    
    
    698
    
    
    
    (1,271
    )
    
    
    1,094Tax on profit/(loss) on continuing operations
    
    
    (126
    )
    
    
    (10
    )
    
    
    (204
    )
    
    
    65
    
    
    
    (275
    )Profit/(loss) for the year from continuing operations
    
    
    1,328
    
    
    
    203
    
    
    
    494
    
    
    
    (1,206
    )
    
    
    819Profit/(loss)
for the year from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Profit/(loss) for the year
    
    
    1,328
    
    
    
    203
    
    
    
    494
    
    
    
    (1,206
    )
    
    
    819
 The Company
    
    
    ANTS plc
    
    
    Other
    
    
    Adjustments
    
    
    ConsolidatedFor the year ended 31 December 2007
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income
    
    
    1,101
    
    
    
    241
    
    
    
    162
    
    
    
    (5
    )
    
    
    1,499Fee, commission, net trading, and other income
    
    
    900
    
    
    
    22
    
    
    
    623
    
    
    
    (262
    )
    
    
    1,283Total operating income
    
    
    2,001
    
    
    
    263
    
    
    
    785
    
    
    
    (267
    )
    
    
    2,782Administration expenses
    
    
    (1,163
    )
    
    
    (129
    )
    
    
    (92
    )
    
    
    15
    
    
    
    (1,369
    )Depreciation and amortisation
    
    
    (72
    )
    
    
    (2
    )
    
    
    (131
    )
    
    
    
    
    
    
    (205
    )Impairment and provisions
    
    
    (346
    )
    
    
    4
    
    
    
    24
    
    
    
    (26
    )
    
    
    (344
    )Profit/(loss) on continuing operations before tax
    
    
    420
    
    
    
    136
    
    
    
    586
    
    
    
    (278
    )
    
    
    864Tax on profit/(loss) on continuing operations
    
    
    (69
    )
    
    
    (29
    )
    
    
    (89
    )
    
    
    8
    
    
    
    (179
    )Profit/(loss) for the year from continuing operations
    
    
    351
    
    
    
    107
    
    
    
    497
    
    
    
    (270
    )
    
    
    685Profit/(loss) for the year from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Profit/(loss) for the year
    
    
    351
    
    
    
    107
    
    
    
    497
    
    
    
    (270
    )
    
    
    685
 The Company
    
    
    ANTS plc
    
    
    Other
    
    
    Adjustments
    
    
    ConsolidatedFor the year ended 31 December 2006
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income
    
    
    983
    
    
    
    109
    
    
    
    136
    
    
    
    
    
    
    
    1,228Fee, commission, net trading, and other income
    
    
    574
    
    
    
    122
    
    
    
    805
    
    
    
    (259
    )
    
    
    1,242Total operating income
    
    
    1,557
    
    
    
    231
    
    
    
    941
    
    
    
    (259
    )
    
    
    2,470Administration expenses
    
    
    (1,181
    )
    
    
    (109
    )
    
    
    (130
    )
    
    
    
    
    
    
    (1,420
    )Depreciation and amortisation
    
    
    (79
    )
    
    
    (3
    )
    
    
    (133
    )
    
    
    
    
    
    
    (215
    )Impairment and provisions
    
    
    (534
    )
    
    
    
    
    
    
    165
    
    
    
    (38
    )
    
    
    (407
    )Profit/(loss) on continuing operations before tax
    
    
    (237
    )
    
    
    119
    
    
    
    843
    
    
    
    (297
    )
    
    
    428Tax on profit/(loss) on continuing operations
    
    
    109
    
    
    
    (55
    )
    
    
    (169
    )
    
    
    
    
    
    
    (115
    )Profit/(loss) for the year from continuing operations
    
    
    (128
    )
    
    
    64
    
    
    
    674
    
    
    
    (297
    )
    
    
    313Profit/(loss) for the year from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (245
    )
    
    
    
    
    
    
    (245
    )Profit/(loss) for the year
    
    
    (128
    )
    
    
    64
    
    
    
    429
    
    
    
    (297
    )
    
    
    68
 Balance sheets
 The Company
    
    
    ANTS plc
    
    
    Other
    
    
    Adjustments
    
    
    ConsolidatedAt 31 December 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCash and balances at central banks
    
    
    2,456
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    2,464Trading assets
    
    
    
    
    
    
    26,389
    
    
    
    19,675
    
    
    
    (20,578
    )
    
    
    25,486Derivative financial instruments
    
    
    2,735
    
    
    
    32,160
    
    
    
    11,213
    
    
    
    (13,827
    )
    
    
    32,281Financial assets designated at fair value
    
    
    47,525
    
    
    
    11,005
    
    
    
    276
    
    
    
    (47,492
    )
    
    
    11,314Loans and advances to banks
    
    
    116,486
    
    
    
    128,035
    
    
    
    103,284
    
    
    
    (323,504
    )
    
    
    24,301Loans and advances to customers
    
    
    123,319
    
    
    
    25,027
    
    
    
    47,820
    
    
    
    (67,143
    )
    
    
    129,023Available for sale securities
    
    
    25
    
    
    
    
    
    
    
    980
    
    
    
    
    
    
    
    1,005Macro hedge of interest rate risk
    
    
    
    
    
    
    1,475
    
    
    
    
    
    
    
    
    
    
    
    1,475Investment in associated undertakings
    
    
    741
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    735Investment in subsidiary undertakings
    
    
    5,222
    
    
    
    2,335
    
    
    
    2,050
    
    
    
    (9,607
    )
    
    
    Intangible assets
    
    
    406
    
    
    
    6
    
    
    
    90
    
    
    
    
    
    
    
    502Property, plant and equipment
    
    
    569
    
    
    
    9
    
    
    
    3
    
    
    
    
    
    
    
    581Current tax assets
    
    
    194
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    195Deferred tax assets
    
    
    458
    
    
    
    75
    
    
    
    9
    
    
    
    (3
    )
    
    
    539Other assets
    
    
    990
    
    
    
    778
    
    
    
    73
    
    
    
    
    
    
    
    1,841Total assets
    
    
    301,126
    
    
    
    227,302
    
    
    
    185,474
    
    
    
    (482,160
    )
    
    
    231,742Deposits by banks
    
    
    124,846
    
    
    
    123,366
    
    
    
    21,212
    
    
    
    (266,087
    )
    
    
    3,337Deposits by customers
    
    
    155,466
    
    
    
    9,743
    
    
    
    57,420
    
    
    
    (123,383
    )
    
    
    99,246Derivative financial instruments
    
    
    5,393
    
    
    
    33,511
    
    
    
    1,393
    
    
    
    (13,988
    )
    
    
    26,309Trading liabilities
    
    
    739
    
    
    
    22,996
    
    
    
    36,672
    
    
    
    (19,669
    )
    
    
    40,738Financial liabilities designated at fair value
    
    
    
    
    
    
    4,898
    
    
    
    47
    
    
    
    
    
    
    
    4,945Debt securities in issue
    
    
    
    
    
    
    29,692
    
    
    
    58,612
    
    
    
    (47,126
    )
    
    
    41,178Other borrowed funds
    
    
    905
    
    
    
    
    
    
    
    1,028
    
    
    
    143
    
    
    
    2,076Subordinated liabilities
    
    
    7,030
    
    
    
    
    
    
    
    1,122
    
    
    
    (2,326
    )
    
    
    5,826Other liabilities
    
    
    1,283
    
    
    
    83
    
    
    
    402
    
    
    
    2
    
    
    
    1,770Other provisions
    
    
    99
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    107Current tax liabilities
    
    
    128
    
    
    
    236
    
    
    
    153
    
    
    
    
    
    
    
    517Deferred tax liabilities
    
    
    6
    
    
    
    
    
    
    
    143
    
    
    
    (63
    )
    
    
    86Retirement benefit obligations
    
    
    797
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    796Total liabilities
    
    
    296,692
    
    
    
    224,525
    
    
    
    178,211
    
    
    
    (472,497
    )
    
    
    226,931Total shareholders equity
    
    
    4,434
    
    
    
    2,777
    
    
    
    7,262
    
    
    
    (9,662
    )
    
    
    4,811Total liabilities and equity
    
    
    301,126
    
    
    
    227,302
    
    
    
    185,473
    
    
    
    (482,159
    )
    
    
    231,742
 136




---



##### Table of Contents



Financial Statements
 Notes to the Financial Statements
 The Company
    
    
    ANTS plc
    
    
    Other
    
    
    Adjustments
    
    
    ConsolidatedAt 31 December 2007
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCash and balances at central banks
    
    
    1,032
    
    
    
    7
    
    
    
    (1
    )
    
    
    
    
    
    
    1,038Trading assets
    
    
    
    
    
    
    32,760
    
    
    
    34,622
    
    
    
    (10,955
    )
    
    
    56,427Derivative financial instruments
    
    
    689
    
    
    
    10,358
    
    
    
    1,618
    
    
    
    (2,714
    )
    
    
    9,951Financial assets designated at fair value
    
    
    7,500
    
    
    
    11,446
    
    
    
    283
    
    
    
    (7,446
    )
    
    
    11,783Loans and advances to banks
    
    
    40,685
    
    
    
    57,021
    
    
    
    60,124
    
    
    
    (154,389
    )
    
    
    3,441Loans and advances to customers
    
    
    110,976
    
    
    
    6,181
    
    
    
    35,143
    
    
    
    (40,153
    )
    
    
    112,147Available for sale securities
    
    
    28
    
    
    
    45
    
    
    
    1,929
    
    
    
    (1,962
    )
    
    
    40Macro hedge of interest rate risk
    
    
    
    
    
    
    220
    
    
    
    
    
    
    
    (3
    )
    
    
    217Investment in associated undertakings
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    29Investment in subsidiary undertakings
    
    
    5,053
    
    
    
    2,336
    
    
    
    2,925
    
    
    
    (10,314
    )
    
    
    Intangible assets
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    90Property, plant and equipment
    
    
    501
    
    
    
    13
    
    
    
    14
    
    
    
    
    
    
    
    528Operating lease assets
    
    
    
    
    
    
    
    
    
    
    2,164
    
    
    
    
    
    
    
    2,164Current tax assets
    
    
    190
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    197Deferred tax assets
    
    
    620
    
    
    
    18
    
    
    
    27
    
    
    
    
    
    
    
    665Other assets
    
    
    686
    
    
    
    57
    
    
    
    165
    
    
    
    (2
    )
    
    
    906Total assets
    
    
    167,993
    
    
    
    120,462
    
    
    
    139,110
    
    
    
    (227,942
    )
    
    
    199,623Deposits by banks
    
    
    59,798
    
    
    
    49,847
    
    
    
    17,990
    
    
    
    (119,712
    )
    
    
    7,923Deposits by customers
    
    
    95,687
    
    
    
    9,714
    
    
    
    43,768
    
    
    
    (79,519
    )
    
    
    69,650Derivative financial instruments
    
    
    1,051
    
    
    
    10,457
    
    
    
    1,137
    
    
    
    (2,714
    )
    
    
    9,931Trading liabilities
    
    
    
    
    
    
    33,926
    
    
    
    27,219
    
    
    
    (6,229
    )
    
    
    54,916Financial liabilities designated at fair value
    
    
    
    
    
    
    7,530
    
    
    
    8
    
    
    
    
    
    
    
    7,538Debt securities in issue
    
    
    
    
    
    
    5,840
    
    
    
    37,502
    
    
    
    (7,630
    )
    
    
    35,712Other borrowed funds
    
    
    834
    
    
    
    
    
    
    
    737
    
    
    
    (152
    )
    
    
    1,419Subordinated liabilities
    
    
    5,352
    
    
    
    
    
    
    
    1,091
    
    
    
    (1,711
    )
    
    
    4,732Macro hedge of interest rate risk
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    Other liabilities
    
    
    1,452
    
    
    
    254
    
    
    
    632
    
    
    
    (1
    )
    
    
    2,337Other provisions
    
    
    100
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    131Current tax liabilities
    
    
    137
    
    
    
    176
    
    
    
    56
    
    
    
    
    
    
    
    369Deferred tax liabilities
    
    
    6
    
    
    
    
    
    
    
    532
    
    
    
    6
    
    
    
    544Retirement benefit obligations
    
    
    982
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    979Total liabilities
    
    
    165,402
    
    
    
    117,744
    
    
    
    130,700
    
    
    
    (217,665
    )
    
    
    196,181Total shareholders equity
    
    
    2,591
    
    
    
    2,718
    
    
    
    8,410
    
    
    
    (10,277
    )
    
    
    3,442Total liabilities and equity
    
    
    167,993
    
    
    
    120,462
    
    
    
    139,110
    
    
    
    (227,942
    )
    
    
    199,623
 Cash flow statements
 The Company
    
    
    ANTS plc
    
    
    Other
    
    
    Adjustments
    
    
    ConsolidatedFor the year ended 31 December 2008
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet cash flow from / (used in) operating activities
    
    
    51,816
    
    
    
    6,658
    
    
    
    (80,589
    )
    
    
    
    
    
    
    (22,115
    )Net cash flow from / (used in) investing activities
    
    
    (1,359
    )
    
    
    38
    
    
    
    19,026
    
    
    
    
    
    
    
    17,705Net cash flow from / (used in) financing activities
    
    
    152
    
    
    
    (161
    )
    
    
    (7,373
    )
    
    
    
    
    
    
    (7,382
    )Net increase/ (decrease) in cash and cash equivalents
    
    
    50,609
    
    
    
    6,535
    
    
    
    (68,936
    )
    
    
    
    
    
    
    (11,792
    )Cash and cash equivalents at beginning of the year
    
    
    10,594
    
    
    
    29,137
    
    
    
    (5,675
    )
    
    
    
    
    
    
    34,056Effects of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    2,348
    
    
    
    694
    
    
    
    
    
    
    
    3,042Cash and cash equivalents at end of the year
    
    
    61,203
    
    
    
    38,020
    
    
    
    (73,917
    )
    
    
    
    
    
    
    25,306
 The Company
    
    
    ANTS plc
    
    
    Other
    
    
    Adjustments
    
    
    ConsolidatedFor the year ended 31 December 2007
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet cash flow from / (used in) operating activities
    
    
    5,949
    
    
    
    (1,874
    )
    
    
    (13,407
    )
    
    
    
    
    
    
    (9,332
    )Net cash flow from / (used in) investing activities
    
    
    14
    
    
    
    (9
    )
    
    
    (201
    )
    
    
    
    
    
    
    (196
    )Net cash flow from / (used in) financing activities
    
    
    (576
    )
    
    
    
    
    
    
    5,352
    
    
    
    
    
    
    
    4,776Net increase/ (decrease) in cash and cash equivalents
    
    
    5,387
    
    
    
    (1,883
    )
    
    
    (8,256
    )
    
    
    
    
    
    
    (4,752
    )Cash and cash equivalents at beginning of the year
    
    
    5,207
    
    
    
    31,020
    
    
    
    2,855
    
    
    
    
    
    
    
    39,082Effects of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (274
    )
    
    
    
    
    
    
    (274
    )Cash and cash equivalents at end of the year
    
    
    10,594
    
    
    
    29,137
    
    
    
    (5,675
    )
    
    
    
    
    
    
    34,056
 The Company
    
    
    ANTS plc
    
    
    Other
    
    
    Adjustments
    
    
    ConsolidatedFor the year ended 31 December 2006
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet cash flow from / (used in) operating activities
    
    
    (5,858
    )
    
    
    1,922
    
    
    
    4,367
    
    
    
    
    
    
    
    431Net cash flow from / (used in) investing activities
    
    
    3,977
    
    
    
    294
    
    
    
    (4,868
    )
    
    
    
    
    
    
    (597
    )Net cash flow from / (used in) financing activities
    
    
    (1,239
    )
    
    
    (247
    )
    
    
    3,244
    
    
    
    
    
    
    
    1,758Net (decrease) in cash and cash equivalents
    
    
    (3,120
    )
    
    
    1,969
    
    
    
    2,743
    
    
    
    
    
    
    
    1,592Cash and cash equivalents at beginning of the year
    
    
    8,327
    
    
    
    29,406
    
    
    
    2,626
    
    
    
    
    
    
    
    40,359Effects of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (355
    )
    
    
    (2,514
    )
    
    
    
    
    
    
    (2,869
    )Cash and cash equivalents at end of the year
    
    
    5,207
    
    
    
    31,020
    
    
    
    2,855
    
    
    
    
    
    
    
    39,082
 137




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##### Table of Contents



Selected Financial Data
 
 Selected Financial Data
  Balance sheets
 2008(1)
    
    
    2008
    
    
    2007
    
    
    2006(2)
    
    
    2005(3)
    
    
    2004$m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAssetsCash and balances at central banks
    
    
    3,602
    
    
    
    2,464
    
    
    
    1,038
    
    
    
    888
    
    
    
    991
    
    
    
    454Trading assets
    
    
    37,258
    
    
    
    25,486
    
    
    
    56,427
    
    
    
    62,314
    
    
    
    58,231
    
    
    
    Derivative financial instruments
    
    
    47,192
    
    
    
    32,281
    
    
    
    9,951
    
    
    
    8,336
    
    
    
    11,855
    
    
    
    2,377Financial assets designated at fair value
    
    
    16,540
    
    
    
    11,314
    
    
    
    11,783
    
    
    
    8,713
    
    
    
    30,597
    
    
    
    Loans and advances to banks
    
    
    35,526
    
    
    
    24,301
    
    
    
    3,441
    
    
    
    2,242
    
    
    
    444
    
    
    
    11,751Loans and advances to customers
    
    
    188,619
    
    
    
    129,023
    
    
    
    112,147
    
    
    
    103,146
    
    
    
    95,467
    
    
    
    109,416Debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,010Equity securities and other variable yield securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,792Available for sale securities
    
    
    1,469
    
    
    
    1,005
    
    
    
    40
    
    
    
    23
    
    
    
    13
    
    
    
    Macro hedge of interest rate risk
    
    
    2,156
    
    
    
    1,475
    
    
    
    217
    
    
    
    
    
    
    
    
    
    
    
    Investment in associated undertakings
    
    
    1,074
    
    
    
    735
    
    
    
    29
    
    
    
    22
    
    
    
    24
    
    
    
    25Intangible assets
    
    
    734
    
    
    
    502
    
    
    
    90
    
    
    
    90
    
    
    
    171
    
    
    
    175Value of in-force business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,721
    
    
    
    1,844Property, plant and equipment
    
    
    849
    
    
    
    581
    
    
    
    528
    
    
    
    415
    
    
    
    314
    
    
    
    262Operating lease assets
    
    
    
    
    
    
    
    
    
    
    2,164
    
    
    
    2,082
    
    
    
    2,172
    
    
    
    2,275Investment property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,228Current tax assets
    
    
    285
    
    
    
    195
    
    
    
    197
    
    
    
    223
    
    
    
    235
    
    
    
    242Deferred tax assets
    
    
    788
    
    
    
    539
    
    
    
    665
    
    
    
    804
    
    
    
    796
    
    
    
    501Other assets
    
    
    2,691
    
    
    
    1,841
    
    
    
    906
    
    
    
    2,507
    
    
    
    4,003
    
    
    
    6,381Total assets
    
    
    338,783
    
    
    
    231,742
    
    
    
    199,623
    
    
    
    191,805
    
    
    
    207,034
    
    
    
    184,733LiabilitiesDeposits by banks
    
    
    4,878
    
    
    
    3,337
    
    
    
    7,923
    
    
    
    6,656
    
    
    
    5,617
    
    
    
    18,412Deposits by customers
    
    
    145,087
    
    
    
    99,246
    
    
    
    69,650
    
    
    
    66,519
    
    
    
    65,889
    
    
    
    78,660Derivative financial instruments
    
    
    38,461
    
    
    
    26,309
    
    
    
    9,931
    
    
    
    10,218
    
    
    
    11,264
    
    
    
    3,665Trading liabilities
    
    
    59,555
    
    
    
    40,738
    
    
    
    54,916
    
    
    
    57,604
    
    
    
    52,664
    
    
    
    Financial liabilities designated at fair value
    
    
    7,229
    
    
    
    4,945
    
    
    
    7,538
    
    
    
    8,151
    
    
    
    7,948
    
    
    
    Debt securities in issue
    
    
    60,198
    
    
    
    41,178
    
    
    
    35,712
    
    
    
    28,998
    
    
    
    21,276
    
    
    
    37,067Other borrowed funds
    
    
    3,035
    
    
    
    2,076
    
    
    
    1,419
    
    
    
    1,655
    
    
    
    2,244
    
    
    
    722Subordinated liabilities
    
    
    8,517
    
    
    
    5,826
    
    
    
    4,732
    
    
    
    5,020
    
    
    
    6,205
    
    
    
    5,484Insurance and reinsurance liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,501
    
    
    
    24,923Macro hedge of interest rate risk
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    174
    
    
    
    13
    
    
    
    Other liabilities
    
    
    2,588
    
    
    
    1,770
    
    
    
    2,337
    
    
    
    1,616
    
    
    
    3,190
    
    
    
    8,844Investment contract liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,306
    
    
    
    Provisions
    
    
    156
    
    
    
    107
    
    
    
    131
    
    
    
    180
    
    
    
    253
    
    
    
    302Current tax liabilities
    
    
    756
    
    
    
    517
    
    
    
    369
    
    
    
    300
    
    
    
    288
    
    
    
    161Deferred tax liabilities
    
    
    126
    
    
    
    86
    
    
    
    544
    
    
    
    564
    
    
    
    886
    
    
    
    1,064Retirement benefit obligations
    
    
    1,164
    
    
    
    796
    
    
    
    979
    
    
    
    1,034
    
    
    
    1,380
    
    
    
    1,197Minority interests  non-equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    512Total liabilities
    
    
    331,750
    
    
    
    226,931
    
    
    
    196,181
    
    
    
    188,689
    
    
    
    203,924
    
    
    
    181,013Share capital
    
    
    1,678
    
    
    
    1,148
    
    
    
    148
    
    
    
    148
    
    
    
    148
    
    
    
    473Share premium account
    
    
    2,715
    
    
    
    1,857
    
    
    
    1,857
    
    
    
    1,857
    
    
    
    1,857
    
    
    
    2,164Retained earnings
    
    
    2,485
    
    
    
    1,700
    
    
    
    1,339
    
    
    
    1,111
    
    
    
    1,105
    
    
    
    1,0836,878
    
    
    
    4,705
    
    
    
    3,344
    
    
    
    3,116
    
    
    
    3,110
    
    
    
    3,720Minority interest
    
    
    155
    
    
    
    106
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    Total shareholders equity
    
    
    7,033
    
    
    
    4,811
    
    
    
    3,442
    
    
    
    3,116
    
    
    
    3,110
    
    
    
    3,720Total liabilities and equity
    
    
    338,783
    
    
    
    231,742
    
    
    
    199,623
    
    
    
    191,805
    
    
    
    207,034
    
    
    
    184,733
 
 1.
    
    Amounts stated in dollars have been translated from sterling at the rate of £1.00  $1.4619, the
noon buying rate on 31 December 2008.2.
    
    In the third quarter of 2006 the Group sold its life insurance business. A description of the
transaction and an analysis of the results of the life insurance business are disclosed in Note 11
of the Consolidated Financial Statements.3.
    
    The Company, in line with all listed entities in the European Union, was required to adopt
International Financial Reporting Standards (IFRS) in preparing its financial statements for the
year ended 31 December 2005. Up to 31 December 2004, the Group prepared its financial statements in
accordance with UK Generally Accepted Accounting Principles (UK GAAP). Key standards IAS 32
Financial Instruments: Disclosure and Presentation, IAS 39 Financial Instruments: Recognition
and Measurement and IFRS 4 Insurance Contracts were applied prospectively from 1 January 2005.
All other standards were required to be applied retrospectively. 138




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##### Table of Contents



Selected Financial Data
 Selected Financial Data
 Income statements
 2008(1)
    
    
    2008
    
    
    2007
    
    
    2006(2)
    
    
    2005(3)
    
    
    2004$m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNet interest income
    
    
    2,590
    
    
    
    1,772
    
    
    
    1,499
    
    
    
    1,228
    
    
    
    1,172
    
    
    
    1,406Net fee and commission income
    
    
    981
    
    
    
    671
    
    
    
    695
    
    
    
    699
    
    
    
    644
    
    
    
    526Dividend income
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Net trading and other income
    
    
    820
    
    
    
    561
    
    
    
    587
    
    
    
    542
    
    
    
    538
    
    
    
    597Total operating income
    
    
    4,391
    
    
    
    3,004
    
    
    
    2,782
    
    
    
    2,470
    
    
    
    2,355
    
    
    
    2,530Administration expenses
    
    
    (1,963
    )
    
    
    (1,343
    )
    
    
    (1,369
    )
    
    
    (1,420
    )
    
    
    (1,577
    )
    
    
    (2,013
    )Depreciation and amortisation
    
    
    (295
    )
    
    
    (202
    )
    
    
    (205
    )
    
    
    (215
    )
    
    
    (195
    )
    
    
    (355
    )Total operating expenses, exc provisions and charges
    
    
    (2,258
    )
    
    
    (1,545
    )
    
    
    (1,574
    )
    
    
    (1,635
    )
    
    
    (1,772
    )
    
    
    (2,368
    )Impairment losses on loans and advances
    
    
    (509
    )
    
    
    (348
    )
    
    
    (344
    )
    
    
    (344
    )
    
    
    (218
    )
    
    
    (25
    )Amounts written off fixed asset investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80Provisions for other liabilities and charges
    
    
    (25
    )
    
    
    (17
    )
    
    
    
    
    
    
    (63
    )
    
    
    (3
    )
    
    
    (201
    )Total operating provisions and charges
    
    
    (534
    )
    
    
    (365
    )
    
    
    (344
    )
    
    
    (407
    )
    
    
    (221
    )
    
    
    (146
    )Profit on continuing operations before tax
    
    
    1,599
    
    
    
    1,094
    
    
    
    864
    
    
    
    428
    
    
    
    362
    
    
    
    16Tax on profit on continuing operations
    
    
    (402
    )
    
    
    (275
    )
    
    
    (179
    )
    
    
    (115
    )
    
    
    (108
    )
    
    
    12Profit on continuing operations after tax
    
    
    1,197
    
    
    
    819
    
    
    
    685
    
    
    
    313
    
    
    
    254
    
    
    
    28Profit/(loss) on discontinued operations after tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (245
    )
    
    
    166
    
    
    
    (82
    )Profit/(loss) for the year
    
    
    1,197
    
    
    
    819
    
    
    
    685
    
    
    
    68
    
    
    
    420
    
    
    
    (54
    )
 Selected statistical information
 2008
    
    
    2007
    
    
    2006(2)
    
    
    2005(3)
    
    
    2004%
    
    
    %
    
    
    %
    
    
    %
    
    
    %Profitability ratios:Return on average total assets(4)
    
    
    0.40
    
    
    
    0.34
    
    
    
    0.03
    
    
    
    0.21
    
    
    
    (0.03
    )Return on average ordinary shareholders funds (5)
    
    
    22.91
    
    
    
    22.08
    
    
    
    2.20
    
    
    
    19.56
    
    
    
    (1.17
    )Net interest margin (6)
    
    
    1.32
    
    
    
    1.34
    
    
    
    1.19
    
    
    
    1.19
    
    
    
    1.36Abbey trading cost income ratio (7)
    
    
    45
    
    
    
    50
    
    
    
    55
    
    
    
    60
    
    
    
    74PFS trading cost income ratio (8)
    
    
    45
    
    
    
    50
    
    
    
    55
    
    
    
    61
    
    
    
    73Dividend payout ratio(9)
    
    
    55
    
    
    
    54
    
    
    
    304
    
    
    
    
    
    
    
    (1,619
    )Capital ratios:Average ordinary shareholders funds as percentage of ave total assets
    
    
    1.75
    
    
    
    1.52
    
    
    
    1.54
    
    
    
    1.07
    
    
    
    2.23Total capital(10)
    
    
    14.0
    
    
    
    11.4
    
    
    
    12.6
    
    
    
    12.5
    
    
    
    12.0Tier 1 capital(10)
    
    
    8.5
    
    
    
    7.3
    
    
    
    8.0
    
    
    
    10.0
    
    
    
    10.4Ratio of earnings to fixed charges: (11)Excluding interest on retail deposits
    
    
    136.61
    
    
    
    132.74
    
    
    
    122.57
    
    
    
    121.45
    
    
    
    100.77Including interest on retail deposits
    
    
    117.81
    
    
    
    115.58
    
    
    
    109.70
    
    
    
    108.52
    
    
    
    100.38
 1.
    
    Amounts stated in dollars have been translated from sterling at the rate of £1.00  $1.4619, the
noon buying rate on 31 December 2008.2.
    
    In the third quarter of 2006 the Group sold its life insurance business. See Note 11 of the
Consolidated Financial Statements.3.
    
    The Company, in line with all listed entities in the European Union, was required to adopt
International Financial Reporting Standards (IFRS) in preparing its financial statements for the
year ended 31 December 2005. Up to 31 December 2004, the Group prepared its financial statements in
accordance with UK Generally Accepted Accounting Principles (UK GAAP). Key standards IAS 32
Financial Instruments: Disclosure and Presentation, IAS 39 Financial Instruments: Recognition
and Measurement and IFRS 4 Insurance Contracts were applied prospectively from 1 January 2005.
All other standards were required to be applied retrospectively.4.
    
    Profit after tax divided by average total assets.5.
    
    Profit after tax divided by average equity shareholders funds.6.
    
    Net interest margin represents net interest income as a percentage of average interest-earning
assets.7.
    
    The Abbey trading cost income ratio is defined as trading expenses from continuing operations
divided by trading income from continuing operations. The Companys board of directors reviews
discrete financial information for each of its segments that includes measures of operating results
and assets, which are measured on a trading basis. The trading basis differs from the statutory
basis as a result of the application of various adjustments. See Note 1 to the Consolidated
Financial Statements.8.
    
    The PFS trading cost income ratio is defined as trading expenses divided by trading income of
the Personal Financial Services businesses. The Personal Financial Services businesses represent
the continuing operations of the Group, except for the businesses, assets and portfolios that were
inconsistent with the Groups strategy to focus on Personal Financial Services and were sold during
2004 and 2005. The excluded businesses were known as the Portfolio Business Unit (PBU). As the
PBU businesses were inconsistent with the Groups strategy, management believes that presentation
of this financial measure provides useful information to investors regarding the Groups financial
condition and results of operations. As there were no longer any businesses, assets or portfolios
remaining in the PBU by the end of 2005, there is no difference between the PFS cost income ratio
and the Abbey cost income ratio from 2006 onwards. A reconciliation between the Abbey trading cost
income ratio and the PFS trading cost income ratio is as follows:
 2005
    
    
    2004£m
    
    
    £mPFS trading costs
    
    
    1,431
    
    
    
    1,627PBU trading costs
    
    
    2
    
    
    
    56Abbey trading costs
    
    
    1,433
    
    
    
    1,683PFS trading income
    
    
    2,334
    
    
    
    2,229PBU trading income
    
    
    70
    
    
    
    46Abbey trading income
    
    
    2,404
    
    
    
    2,275Abbey trading cost incomeratio
    
    
    60
    %
    
    
    74
    %PFS trading cost income ratio
    
    
    61
    %
    
    
    73
    %
 9.
    
    Equity dividends proposed divided by profit after tax.10.
    
    From 1 January 2008, the Group has managed its capital requirements on a Basel II basis, as
described in Note 47 to the Consolidated Financial Statements.11.
    
    For the purpose of calculating the ratios of earnings to fixed charges, earnings consist of
profit on continuing operations before tax plus fixed charges. Fixed charges consist of interest
payable, including the amortisation of discounts and premiums on debt securities in issue.
 139




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##### Table of Contents



Selected Financial Data
 Selected Financial Data
 Exchange rates
  High
    
    
    Low
    
    
    Average (1)
    
    
    Period endCalendar period
    
    $ Rate
    
    
    $ Rate
    
    
    $ Rate
    
    
    $ RateYears ended 31 December:2008
    
    
    2.03
    
    
    
    1.44
    
    
    
    1.85
    
    
    
    1.462007
    
    
    2.11
    
    
    
    1.92
    
    
    
    2.00
    
    
    
    1.982006
    
    
    1.98
    
    
    
    1.73
    
    
    
    1.84
    
    
    
    1.962005
    
    
    1.93
    
    
    
    1.72
    
    
    
    1.81
    
    
    
    1.722004
    
    
    1.95
    
    
    
    1.75
    
    
    
    1.84
    
    
    
    1.78Months ended:March 2009(2)
    
    1.43
        
    1.38
        
    1.41
        
    1.41February 2009
    
    1.49
        
    1.42
        
    1.44
        
    1.43January 2009
    
    
    1.53
    
    
    
    1.37
    
    
    
    1.45
    
    
    
    1.44December 2008
    
    
    1.55
    
    
    
    1.44
    
    
    
    1.49
    
    
    
    1.46November 2008
    
    
    1.62
    
    
    
    1.48
    
    
    
    1.53
    
    
    
    1.53October 2008
    
    
    1.78
    
    
    
    1.55
    
    
    
    1.69
    
    
    
    1.62September 2008
    
    
    1.86
    
    
    
    1.75
    
    
    
    1.80
    
    
    
    1.78
 1.
    
    The average of the noon buying rates on the last business day of each month during the relevant
period.2.
    
    With respect to March 2009 for the period from 1 March
to 18 March.
 140




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Shareholder Information
 
 Risk Factors
  Abbeys risk management measures may not be successful
  Risks concerning borrower credit quality and general economic conditions are inherent in Abbeys
business
    The soundness of other financial institutions could materially and adversely affect Abbeys
business
  Risks associated with liquidity and funding are inherent in Abbeys business
   141




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Shareholder Information
 Risk Factors
 Any reduction in Abbeys credit rating could increase its cost of funding and adversely affect its
interest margins
  Market risks associated with fluctuations in interest rates, bond and equity prices and other
market factors are inherent in Abbeys business
   Risks associated with strategic decisions regarding organic growth, and potential acquisitions and
disposals
  Abbey may incur unanticipated losses related to its recent business combinations
  Abbey may fail to realise the anticipated benefits of its recent business combinations
  Abbeys business is concentrated in the UK and on the offering of mortgage related products and
services
  142




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Shareholder Information
 Risk Factors
  Abbeys business is conducted in a highly competitive environment
  Operational risks are inherent in Abbeys business
  Reputational risk could cause harm to Abbey and its business prospects
  Abbeys businesses are subject to substantial legislation, regulatory and governmental oversight
  The Banking Act 2009 may adversely affect the Groups business
    143




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Shareholder Information
 Risk Factors
      Risks concerning enforcement of judgements made in the United States
  144




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Shareholder Information
 
 Taxation for US Investors
  United Kingdom taxation on dividends
  United States taxation on dividends
    United Kingdom taxation on capital gains
  > an individual who is neither resident nor ordinarily resident in the UK; or> a company which is not resident in the UK;
  United Kingdom inheritance tax
  > domiciled for the purposes of the convention in the US; and> is not for the purposes of the convention a national of the UK;
  > the individuals death; or> on a gift of the shares during the individuals lifetime.
  
 Share Information
 Sterling-denominated preference shares
  Major shareholders
  Exchange controls
 145




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##### Table of Contents



Shareholder Information
 
 Contact Information
 Abbey National plc registered office, principal office and investor relations department
 
 Santander shareholder department
 
 Phone numbers
 
 
 Documents on display
  
 Memorandum and Articles of Association
       Preference shares
  146




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Shareholder Information
 Memorandum and Articles of Association
    Ordinary shares
          147




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Shareholder Information
 
 Cross Guarantee
 GUARANTEE
 THIS
INSTRUMENT ABBEY NATIONAL plc Guarantor
 WHEREAS ALLIANCE & LEICESTER PLC Company Guarantee
 NOW IN WITNESS THEREOF
 1.
    
    In this Guarantee, unless the context otherwise requires:
 Creditor
    
    means any person (other than the Company or any subsidiary of
the Company (as defined in section 736 of the Companies Act
1985) or any individual who is a connected person of the
Company within the meaning of section 252 of the Companies
Act 2006) to whom an Obligation is from time to time owed.
 Obligation
    
    means any obligation or liability, either primary or
contingent, lawfully incurred by the Company to any person on
or before 31 July 2012 (whether before or after the execution
of this Guarantee) under or in respect of any dealing,
transaction or engagement whatsoever, including, without
prejudice to the generality of the foregoing, for:
 (i)
    
    any moneys lent, advanced or otherwise made available to
the Company (including, without limitation to the generality
of the foregoing, the liability of the Company for drawing or
issuing bills of exchange, promissory notes, bonds,
debentures, certificates of deposit, commercial paper or
other negotiable instruments or securities);(ii)
    
    any moneys lent, advanced or otherwise made available to
any person, the repayment or payments in respect of which has
or have been guaranteed by the Company or in respect of which
the Company has given an indemnity (including, without
limitation to the generality of the foregoing, guarantees and
letters of credit issued by the Company and bills of exchange
or other negotiable instruments accepted or endorsed by the
Company);(iii)
    
    any moneys which any person shall pay or become liable
to pay, for or on account of the Company, by reason of
entering into or being party to any bond, indemnity, bill of
exchange, guarantee, letter of credit or other engagement for
the benefit or at the request of the Company;(iv)
    
    deposits made with the Company (including, without
limitation of the generality of the foregoing, certificates
of deposit issued by the Company);(v)
    
    any rate swap transaction, swap option, basis swap,
forward rate transaction, commodity swap, commodity option,
equity or equity index swap, equity or equity index option,
bond option, interest rate option, foreign exchange
transaction, cap transaction, collar transaction, floor
transaction, currency swap transaction, cross-currency rate
swap transaction, currency option, credit protection
transaction, credit swap, credit default swap, credit default
option, total return swap, credit spread transaction,
repurchase transaction, reverse repurchase transaction,
buy/sell back transaction, securities lending transaction or
forward purchase or sale of a security, commodity or other
financial instrument or interest (including any option with
respect to any such transactions) or any other derivative
transaction on one or more rates, currencies, commodities,
equity securities or other equity instruments, debt
securities or other debt instruments, indices, or measures of
economic risk or value, in each case, to which the Company is
party (including, for the avoidance of doubt, any obligation
or liability under any master agreement that governs any such
transactions);(vi)
    
    any such obligation or liability assumed under or
incurred pursuant to any novation, transfer, assignment or
other similar agreement between the Company and any other
person; and(vii)
    
    any payments of interest due from the Company with
respect to any of the foregoing transactions (whether or not
the liability to pay such interest arises on or before 31
July 2012) together with all reasonable costs, commissions
and other expenses incurred by any person in connection with
the enforcement of this Guarantee,but excluding:(a)
    
    any such obligations or liabilities of the
Company (including under any guarantee given by the Company)
which by their terms are expressed (in whatever manner) to be
conditional upon the solvency of the Company or subordinated
to, or payable only after full satisfaction of, all or any
obligations of the Company to all or any of its
unsubordinated creditors; and(b)
    
    any such obligations or liabilities of the Company
transferred to, or assumed by, any other person whether pursuant to any
novation or transfer or other similar agreement, any
statutory transfer (pursuant to Part VII of The Financial
Services and Markets Act 2000 or otherwise), any scheme of
arrangement or otherwise.
 person
    
    means any person, firm, trust estate, corporation,
association, cooperative, government or government agency or
other entity.
 148




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Shareholder Information
 Cross
Guarantee
 2.
    
    (a) The Guarantor hereby unconditionally and irrevocably guarantees, for the benefit of each
Creditor, in accordance with the terms and conditions of this Guarantee, the full payment by
the Company when due (whether at
stated maturity, upon acceleration or otherwise) of each and every Obligation and in
the event that the Company shall default in the due and punctual payment of any
Obligation, undertakes to pay, or procure the payment of, such Obligations in the
currency in which the particular Obligation is denominated in the case of a payment
upon written demand being made under this Guarantee by the relevant Creditor,
 (b)
    
    The Guarantor waives any right it may have of first requiring any Creditor to
make demand, proceed or enforce any rights or security against the Company or any other
person before making a claim against the Guarantor under this Guarantee.
 3.
    
    A Creditor shall only be entitled to take or obtain the benefit of this Guarantee upon the
condition that, after receipt by the Guarantor of a written demand from the Creditor, the
Guarantor shall be entitled to deal with the Creditor, and the Creditor shall be obliged to
deal with the Guarantor with respect to the Obligation due to the Creditor and this Guarantee
without the necessity or duty to rely on, act through or otherwise involve or deal with the
Company to the intent that the Guarantor and the Creditor shall deal with one another as
principals in relation to the same provided that the rights, powers, privileges and remedies
of the Creditor under this Guarantee shall not thereby be in any way limited or otherwise
affected.4.
    
    No delay or omission on the part of the Creditor in exercising any right, power, privilege or
remedy (hereinafter together called Rights) in respect of this Guarantee shall impair any
such Rights or be construed as a waiver of any thereof nor shall any single or partial
exercise of any such Rights preclude any further exercise of any other Rights. The Rights
herein provided are cumulative and not exclusive of any rights, powers, privileges or remedies
provided by law. Nothing in this Guarantee shall be construed as voiding, negating or
restricting any right of set-off or any other right whatsoever existing in favour of a
Creditor or arising at common law, by statute or otherwise howsoever.5.
    
    This Guarantee is a continuing guarantee and shall not be satisfied, discharged or affected
by any intermediate payment or settlement of account.6.
    
    The Guarantor will not exercise any rights of subrogation or any other rights or remedy
(including, without limiting the generality of the foregoing, the benefit of any security or
right of set-off) which it may acquire due to its payment of any Obligation pursuant to the
terms of this Guarantee and will not prove in the liquidation of the Company in competition
with any Creditor unless and until all Obligations in respect of the relevant Creditor hereby
guaranteed have been satisfied in full by the Guarantor or the Company. In the event that the
Guarantor shall receive any payment on account of such rights while any Obligation remains
outstanding, the Guarantor shall pay all amounts so received to the relevant Creditor.7.
    
    Payments hereunder shall be made free and clear of any deduction or withholdings other than
those required by law and in that event the Guarantor shall pay such additional amount to the
relevant Creditor as may be necessary in order that the actual amount received after all such
deductions and withholdings shall equal the amount that would have been received if no such
deduction or withholding were required provided that the Guarantor shall not be obliged to pay
any such additional amount which would not have been payable if the payment which is the
subject of the withholding or deduction had been made by the Company. A Creditor shall be
entitled to receive payment of any additional amount which would otherwise be due under this
paragraph only upon the condition that, if the Guarantor makes a payment of an additional
amount in compliance with its obligations under this paragraph and the relevant Creditor
determines that it has received or been granted a credit against or relief or payment of any
tax paid or payable by it in respect thereof the relevant Creditor shall to the extent that it
can do so without prejudice to the retention of the amount of such credit, relief or repayment
pay to the Guarantor such amount as shall be attributable to such deduction or withholding
provided that nothing contained in this paragraph shall interfere with the right of any
Creditor to arrange its tax affairs in whatsoever manner it thinks fit and, in particular, no
Creditor shall be under any obligation to claim relief in respect of any such deduction or
withholding in priority to any other claims for relief available to it.8.
    
    Any demand shall be given in writing addressed to the Guarantor at the registered or
principal office of the Guarantor and served by hand or sent by post, marked for the attention
of the Company Secretary. A demand so made shall be deemed to have been duly made if left at
such address on the day it was so left or, if sent by post, two weekdays after the time when
the same was put in the post and in proving delivery it shall be sufficient to prove that the
same was properly addressed and put in the post.9.
    
    The liability of the Guarantor under this Guarantee shall not be affected by the liquidation,
winding-up or other incapacity of the Company. In the event that any payment to a Creditor
from the Company in respect of an Obligation is avoided or reduced by virtue of any enactments
for the time being in force relating to liquidation or insolvency the Creditor shall be
entitled to recover the value or amount thereof from the Guarantor as if such payment by the
Company had not been made.10.
    
    This Guarantee shall remain in full force and effect irrespective of the validity,
regularity, legality or enforceability against the Company of, or of any defence or
counter-claim whatsoever, available in relation to, any Obligations whether or not any action
has been taken to enforce the same or any judgement obtained against the Company or any other
person, whether or not any time or indulgence has been granted to the Company or any other
person by or on behalf of any Creditor, whether or not there have been any dealings or
transactions between the Company or any other person and any of the Creditors, whether or not
the Company or any other person has been dissolved, liquidated, merged, consolidated, become
bankrupt or has changed its status, functions, control or ownership, whether or not the
Company or any other person has been prevented from making payment by foreign exchange
provisions applicable at its place of registration or incorporation and whether or not any
circumstances have occurred which might otherwise constitute a legal or equitable discharge of
or defence to a guarantor.
 149




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Shareholder Information
 Cross
Guarantee
 11.
    
    In the event that any of the terms or provisions of this Guarantee are or shall become
invalid, illegal or unenforceable, the remaining terms and provisions hereof shall survive
unaffected.
 12.
    
    The Guarantor shall be permitted from time to time and at any time to amend or vary the terms
of this Guarantee PROVIDED THAT the liability of the Guarantor to a Creditor in respect of any
Obligation incurred before, or arising out of an Obligation entered into before, the date of
such variation or amendment, shall not be in any way reduced or limited by such variation or
amendment. Any person shall be entitled to rely on a certificate given by a director or other
duly authorised officer of the
Guarantor as to the existence and extent of this Guarantee and any such variation and/or
amendment of this Guarantee on entering into any dealing, transaction or arrangement with
the Company under or in respect of which an Obligation would or might be incurred by the
Company to that person.
 13.
    
    This Guarantee shall be governed by and construed in accordance with English law.
 IN WITNESS WHEREOF
 THE COMMON SEALof
    
    
    )ABBEY NATIONAL PLC
    
    
    )was hereunto affixed
    
    
    )in the presence of
    
    
    )Shaun
Patrick Coles
Deputy Company Secretary
 150




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##### Table of Contents



Shareholder Information
 
 Directors
Responsibility Statement
  1.
    
    The financial statements, prepared in accordance with International Financial Reporting
Standards, as adopted by the EU, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings included in the
consolidation taken as a whole; and
 2.
    
    The management report, which is incorporated into the Directors Report, includes a fair
review of the development and performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole, together with a description
of the principal risks and uncertainties they face.
  -s- António Horta-Osório
    
    -s-  Nathan BostockAntónio Horta-Osório
    
    Nathan BostockChief Executive
    
    Chief Financial Officer19 March 2009
    
    19 March 2009
 151




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Cross-reference to Form 20-F
 
 Part I1
    
    Identity of Directors, Senior Management and Advisers
    
    
    
    
    *2
    
    Offer Statistics and Expected Timetable
    
    
    
    
    *3
    
    Key Information
    
    Selected Financial Data
    
    
    138Capitalisation and Indebtedness
    
    
    *Reasons for the Offer and use of Proceeds
    
    
    *Risk Factors
    
    
    1414
    
    Information on the Company
    
    History and Development of the Company
    
    
    5Business Overview
    
    
    5Organisational Structure
    
    
    5Property, Plant and Equipment
    
    
    264A
    
    Unresolved Staff Comments
    
    
    
    
    N/a5
    
    Operating and Financial Review and Prospects
    
    Operating Results
    
    
    10Liquidity and Capital Resources
    
    
    28-33Research and Development, Patents and Licenses, etc
    
    
    N/aTrend Information
    
    
    2Off- Balance Sheet Arrangements
    
    
    30Contractual Obligations
    
    
    336
    
    Directors, Senior Management and Employees
    
    Directors and senior management
    
    
    57-58Compensation
    
    
    63Board Practices
    
    
    62-63Employees
    
    
    64-65Share Ownership
    
    
    647
    
    Major Shareholders and Related Party Transactions
    
    Major Shareholders
    
    
    145Related Party Transactions
    
    
    63, 129-132Interests of Experts and Counsel
    
    
    *8
    
    Financial Information
    
    Consolidated Statements and Other Financial
    
    
    72InformationSignificant Changes
    
    
    99
    
    The Offer and Listing
    
    Offer Listing and Details
    
    
    *Plan of Distribution
    
    
    *Markets
    
    
    N/aSelling shareholders
    
    
    *Dilution
    
    
    *Expenses of the Issue
    
    
    *10
    
    Additional Information
    
    Share Capital
    
    
    *Memorandum and Articles of Association
    
    
    146Material Contracts
    
    
    21Exchange Controls
    
    
    N/aTaxation
    
    
    145Dividends and Paying Agents
    
    
    *Statements by Experts
    
    
    *Documents on Display
    
    
    146Subsidiary Information
    
    
    N/a11
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    
    
    36-5112
    
    Description of Securities Other Than Equity Securities
    
    Debt Securities
    
    
    *Warrants and Rights
    
    
    *Other Securities
    
    
    *American Depositary Shares
    
    
    *Part II13
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    
    
    N/a14
    
    Material Modifications to the Rights of Security Holdersand Use of Proceeds
    
    
    
    
    N/a15
    
    Controls and Procedures
    
    Disclosure Controls and Procedures
    
    
    66Management's Annual Report on Internal Control over
    
    
    66Financial ReportingAttestation Report of the Registered Public
    
    
    N/aAccounting FirmChanges in Internal Control Over Financial Reporting
    
    
    6615T
    
    Controls and Procedures
    
    
    
    
    N/a16A
    
    Audit Committee Financial Expert
    
    
    
    
    6216B
    
    Code of Ethics
    
    
    
    
    6516C
    
    Principal Accountant Fees and Services
    
    
    
    
    9916D
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    
    
    N/a16E
    
    Purchases of Equity Securities by the Issuer and AffiliatedPurchasers
    
    
    
    
    N/a16F
    
    Change in Registrant Certifying Accountant
    
    
    
    
    N/a16G
    
    Corporate Governance
    
    
    
    
    N/aPart III17
    
    Financial Statements
    
    
    
    
    N/a18
    
    Financial Statements
    
    
    
    
    7219
    
    Exhibits
    
    
    
    Filed with SEC
 *
    
    Not required for an Annual Report.
 152




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SIGNATURE
   By:
    
    /s/ António Horta-Osório

António Horta-OsórioChief Executive




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##### Table of Contents



EXHIBIT INDEX
 Exhibits *1.1
    
    Memorandum and Articles of Association of Abbey National plc***4.1
    
    Share subscription agreement between Banco Santander, S.A. and Abbey National plc dated 8
January 20097.1
    
    Statement of ratio of earning to fixed charges**8.1
    
    List of Subsidiaries of Abbey National plc12.1
    
    CEO Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    
    CFO Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    
    Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1
    
    Consent of Deloitte LLP**
 
 *
    
    Documents concerning Abbey National plc referred to within the Annual Report on Form 20-F 2008 may
be inspected at Abbey National House, 2 Triton Square, Regents Place, London NW1 3AN, United
Kingdom, the principal executive offices and registered address of Abbey National plc.**
    
    Incorporated by reference into Registration Statements Nos. 333-10232, 333-11320 on Forms F-3.***
    
    As previously filed with the Securities and Exchange Commission as an exhibit to Abbey National
plcs Form 20-F.