RBS reported a loss attributable to ordinary shareholders of £1,979 million, compared with a loss of £3,470 million in 2014. This included elevated restructuring costs (£2,931 million), as the bank’s repositioning accelerated, particularly in the Corporate & Institutional Banking (CIB) business. Litigation and conduct costs (£3,568 million) increased as further steps were taken to clear legacy obstacles from RBS’s path to normalisation.
UK Personal & Business Banking (UK PBB) recorded an adjusted operating profit of £2,169 million, broadly stable compared with the prior year. There was a good performance in mortgages with net new lending totalling £9.3 billion, RBS’s strongest performance since 2009, albeit at lower overall margins as customers shift from standard variable rate to fixed rate products. Adjusted operating costs(2) were 3% lower, while credit quality remained good, with modest net impairment releases.
RCR exit substantially completed Funded assets down 88% since initial pool of assets identified. Residual £4.6 billion of assets within Capital Resolution.
• Core technology platforms continued to be simplified with 370 applications and over 6,000 servers decommissioned.
There is one other major divestment programme under way on which important progress was made during the year. As a condition of the state aid made available to RBS in 2008 the European Commission required the bank to divest over 300 branches in the UK as a standalone banking entity to be known as Williams & Glyn.
I am also impressed with the zeal with which the staff of RBS got on their bikes to support our chosen charity, Sport Relief. Over 700 colleagues got involved, raising over £600,000 in just five days, making the event the largest corporate fundraising event in Sport Relief’s history.
Delivering for customers and shareholders The UK government’s decision to start disposing of its majority stake in RBS during 2015 was a significant step forward, and underlined the progress we have made over the last two years.
RBS is structured around becoming number one for service, trust and advocacy as we meet the ambitions and needs of our retail, business, commercial and corporate customers. Organised under three customer-facing franchises, our core businesses are centred around the UK and Ireland markets with a focused international capability.
Not only is Apple Pay convenient, but customers earn the same rewards they would get using their RBS or NatWest debit or credit cards.
Commercial & Private Banking (CPB) serves commercial and corporate customers, operating principally through the NatWest and Royal Bank of Scotland brands, and high net worth individuals, through Coutts and Adam & Co. In Jersey, Guernsey, the Isle of Man and Gibraltar, RBS International serves a range of retail, commercial, corporate and financial institution customers. CPB aims to support the UK and Western European economies through its provision of credit and banking services to help businesses grow.
“Since our foundation we’ve banked with RBS, so we have a long and trusted relationship,” explains Stephen Large, Director of Finance at King’s College London. “I’m proud of the difference the redevelopment will make to the University, future generations of students and the local community.”
Moving house can be stressful. Then, once you find the right home, you then need to switch energy supplier, set up your broadband and manage your home.
Performance overview • CIB reported an operating loss of £837 million, compared with an operating loss of £710 million in 2014. Adjusted operating loss was £55 million, compared with a profit of £233 million in 2014 as lower income was partially offset by a reduction in adjusted expenses, down 15%.
• Risks related to the competitive environment: RBS’s target markets are highly competitive, which poses challenges in terms of achieving some strategic objectives. Moreover, changes in technology, customer behaviour and business models in these markets have accelerated. RBS monitors the competitive environment and associated technological and customer developments as part of its strategy development and makes adjustments as appropriate.
Carbon emission disclosures RBS has a set of five year environmental targets running from 2015-2020, which sit alongside our pre-existing 2012-2020 targets for business travel and paper. At the end of year one, we can report that due to efficiency initiatives across our UK property portfolio, we’ve continued to reduce our combined Scope 1 and 2 emissions, putting us well on track to meet our global 2020 energy reduction targets. Similarly, our Scope 3 business travel reductions remain on track, as a result of our internal policies to reduce cost and promote more sustainable modes of travel.
• Non-executive director and chair of the audit committee of Ooma Inc.
Experience: Previously a non-executive director and chairman of the corporate compliance and responsibility committee of Wm Morrison
European and International Government practices and has been President of the Institute of
Head of Regulatory Risk (Retail Direct) and Head of Legal and Compliance (Direct Line Financial
The Chief Executive has responsibility for all of RBS’s business and acts in accordance with the authority delegated by the Board.
It is anticipated that non-executive directors will allocate sufficient time to RBS to discharge their responsibilities effectively and will devote such time as is necessary to fulfil their role. Directors have been briefed on the limits on the number of other directorships that they can hold under the requirements of the fourth Capital Requirements Directive (CRD IV). Each director is required to seek the agreement of the Chairman before accepting additional commitments that might affect the time the director is able to devote to his or her role as a non-executive director of
Notes: (1) Appointed to the Committee on 14 July 2015. (2) Joined the Committee on 26 January 2016. (3) Stepped down from the Committee on 31 August 2015.
My appointment as successor to Philip Hampton aside, there have been no other material changes made to the Board or its
• succession planning should receive particular focus in the next few years, as a number of non-executive directors reach or exceed the six year point in their tenure.
The Committee received independent views from the external auditor on these topics and was satisfied that the accounting judgements applied were appropriate.
Committee will continue to balance support to management with independent oversight and challenge. Focus will be placed on maintaining appropriate oversight over financial reporting, preparedness for accounting and regulatory changes including
Exchange Act Rules and the requirements of the New York Stock
Further details of the non-audit services that are prohibited and permitted under the policy can be found on rbs.com. Information on fees paid in respect of audit and non-audit services carried out by the External Auditor can be found in Note 5 to the consolidated accounts on page 291.
Transformation The bank’s extensive programme of transformation has continued throughout 2015 in line with the strategy to be a smaller, simpler UK focused bank. The transformation programme has been a primary focus for the Board Risk
Focus sessions were provided at the Committee’s request on the key workstreams under the transformation programme including: control; the RAG assessment framework; people risk; and technology.
Also monitored the outcomes of the Skilled Person’s review into anti-money laundering compliance, the independent consultant’s report on the bank’s sanctions regime (following the December 2013 Cease & Desist
Assessed and made recommendations to the Group Performance and Remuneration Committee on the performance of the Chief Risk Officer and Chief Conduct & Regulatory Affairs Officer.
Committee, with recommendations made to RemCo as appropriate to inform its decision on pay and awards; • an assessment of the risk/conduct performance of the bank and its businesses, with recommendations made to RemCo to inform its decision on adjustments to the annual bonus pools; • accountability recommendations in respect of significant material events and high earners, including those current and former employees identified as part of the investigation into the manipulation of foreign exchange markets; and
There has been broader, strategic debate and ownership from the executive to drive forward sustainability in their businesses, aligned to customer priorities.
• oversee priorities, targets and reputational challenges on key emerging sustainable banking issues and consider best practice benchmarking.
CEO of UK Retail and became Chief Executive in October 2013. His change in role over the three year vesting period has resulted in 25% of the award being based on UK Retail measures and 75% based on RBS-wide measures.
In addition to the regulatory ratio which currently limits variable pay to the level of fixed pay, awards for executive directors are subject to a maximum of 300% of base
The rates for the year ahead are set out in the annual report on remuneration on the next page.
Committee has been established to comply with Enhanced Prudential Standards and to oversee risk management of our US operations.
The average share price over the last three months of the financial year has been used to estimate the vesting value.
Note: (1) The NPS metric adopted is a bank-wide measure of the gap to #1 bank, which
Chief Executive excludes the relocation expenses provided to Ross McEwan as part of his recruitment as CEO UK Retail in 2012. The value of relocation benefits is disclosed each year in the total remuneration table. In 2015, Ross McEwan also received a fixed share allowance as part of his fixed pay.
Throughout the year ended 31 December 2015, RBS has complied with all of the provisions of the UK Corporate
Board receives monthly risk management reports. Executive management committees in each of the RBS businesses also receive regular reports on significant risks facing their business and how they are being controlled. Details of the bank’s approach to risk management are given in the Capital and Risk
Report of the Group Audit Committee and the Report of the
Based on its assessment, management has concluded that, as of 31 December 2015, RBS’s internal control over financial reporting is effective.
Audit Committee and its work during 2015 is set out in the Group
Board decided to partially neutralise any impact on Core Tier 1 capital of coupon and dividend payments in respect of 2014 and 2015 Group hybrid capital instruments through equity issuances of c.£300 million. Consequently, approximately £300 million was raised during 2014 and 2015 through the issue of new ordinary shares and the Board has decided a further £300 million of new equity will be issued during the course of 2016 to again partially neutralise the CET1 impact of coupon and dividend payments.
Our values, introduced in 2012, guide our actions every day, in every part of our business. They are at the heart of the way we work. They are embedded within our behavioural frameworks this means the way we recruit, promote, reward and manage our people are all aligned.
and the company will continue in operational existence for the foreseeable future. Accordingly, the financial statements of RBS
(EY) as auditor for the year ending 31 December 2016. It is expected that EY will be appointed to fill the casual vacancy arising from Deloitte LLP's resignation following the signing of the 2015 accounts and the Group’s Form 20-F. A resolution to appoint EY as the company’s auditors will be proposed at the forthcoming Annual General Meeting.
Regulation (European Commission Regulation No 1606/2002) to prepare Group accounts, and as permitted by the Companies Act 2006 have elected to prepare company accounts, for each financial year in accordance with International Financial Reporting Standards as adopted by the European Union. They are responsible for preparing accounts that present fairly the financial position, financial performance and cash flows of the Group and the company. In preparing those accounts, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; and
Own credit adjustments represented a gain of £309 million compared with a charge of £146 million in 2014.
Operating expenses excluding restructuring costs of £1,154 million (2013 - £640 million), litigation and conduct costs of £2,194 million (2013 - £3,844 million) and write down of goodwill of £130 million (2013 - £1,059 million), declined by £1,542 million, or 13%, to £10,381 million, mainly reflecting cost savings of £1.1 billion.
The continued focus on costs resulted in a reduction in staff numbers and the bank’s property footprint. Litigation and conduct costs decreased by £88 million reflecting the outcome of reviews relating to provisions on PPI and Interest Rate Hedging Products.
• Launched a lending pilot to upgrade and simplify end-to-end processes with a focus on streamlining our product, pricing and governance operations.
from 2014, principally driven by tight control on discretionary costs and lower litigation and conduct costs, down 54% to £51 million, combined with restructuring costs falling 36% to £69 million. Adjusted operating expenses were £1,801 million, an increase of £57 million, primarily as a result of a higher UK bank levy charge.
connected customers and implement growth initiatives to create long term sustainable returns. The business has moved forward with simplifying its operating model and continued to develop new customer propositions for wealthy individuals and families.
Loans and advances to banks (excluding reverse repos) (1) 5.7 2.5 2.1
• Raising approximately £50 billion for customers in debt capital markets in 2015.
Total income declined by £575 million, 23%, to £1,931 million reflecting reduced deployment of resources and difficult trading conditions, characterised by subdued levels of customer activity and limited market volatility: • Rates suffered from weak trading conditions in the fourth quarter of 2014, largely driven by subdued activity and balance sheet de-risking.
RCR was created on 1 January 2014 and had funded assets of £14.9 billion at the start of 2015 - Refer to pages 120 to 123 for background and more details. RCR formally closed following approval from the PRA on 22 February 2016.
Movements in the value of derivative assets, down £91.1 billion, 26%, to £262.5 billion, and liabilities, down £95.1 billion, 27% to £254.7 billion, were driven by a reduction in interest rate swap notionals as well as yield curve moves.
Debt securities in issue decreased £19.1 billion, 38%, to £31.2 billion reflecting a decrease in CIB and Treasury given the lower funding requirements of a reduced balance sheet.
The Risk Assurance Committee (RAC) provides governance to ensure a consistent and fair approach to all aspects of the review activities of credit and market risk assurance. Additionally, RAC
RBS’s target risk culture is clearly aligned to its core values of
• Based on its assessment of the PRA’s proposals, RBS may issue between £3-£5 billion per annum during 2016-2019 to meet MREL
RBS is able to accumulate additional capital through the reduction in RWAs (either through disposals or natural attrition)
CRAs are annual ‘top down’ processes to help identify, understand and assess material risks. Consideration is given to whether and how much capital should be set aside against each risk type forming a key input to the ICAAP. For effective risk management CRAs are marked against financial or non-financial thresholds.
Under the Bank of England’s hypothetical adverse scenario, the results show that RBS’s capital position remains above the threshold CET1 ratio of 4.5% and meets the leverage ratio of 3.0% with a low point of 6.1% CET1 ratio and 3.0% leverage ratio after ‘strategic’ management actions. The PRA Board judged that
The characteristics of the models relating to these risks are consistent across risks, business lines and throughout the economic cycle, but are also flexible to allow outcomes to be employed for a number of purposes e.g. severity level/confidence interval, time horizon and correlations. Models have been developed internally but are subject to rigorous governance including external benchmarking, independent validation and extensive internal review and challenge. Models are regularly reviewed and continue to be updated for new data sources and improvements in risk modelling methodology.
The ability to change severity levels supports the management of earnings volatility and capital risk. Economic models are used in the ICAAP, assessing risk profiles within the risk appetite framework and functional risk management such as Operational
US bank holding companies and intermediate holding companies of foreign banks to hold specified amounts of both long term debt and TLAC from January 2019. RBS is considering the impact of these rules.
Qualifying instruments and related share premium subject to phase out — 5,092 — 5,820
Qualifying instruments issued by subsidiaries and held by third parties — 1,627 — 1,648
Notes: (1) Derivative potential future exposures (PFE) are calculated based on the notional value of the contracts and is dependent on the type of contract. For contracts other than credit derivatives the PFE is based on the type and maturity of the contract after the effect of netting arrangements. (2) The PFE on credit derivatives is based on add-on factors determined by the asset quality of the referenced instrument. Qualifying credit derivatives attract a PFE add-on of 5%
Notes: (1) Par value reflects the nominal value of securities issued. (2) Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the TLAC/MREL criteria. (3) ‘LAC value’ reflects RBS’s interpretation of the 9 November 2015 FSB Term Sheet on TLAC and the Bank of England’s consultation on their approach to setting MREL, published on 11 December 2015. MREL policy and requirements remain subject to further consultation, as such RBS estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the TLAC/MREL criteria.
° RCR: implemented its disposal and run down strategy a year ahead of plan and reduced RWAs across all business lines - Corporate £4.8 billion, Markets £4.3 billion. Real Estate Finance £3.5 billion and Ulster Bank £0.9 billion. RCR disposals comprised significant proportion of impaired assets and contributed to a £17.8 billion reduction in RWA equivalent, with Ulster Bank portfolio having a residual RWAe of £0.5 billion
Complementary to its deposit funding, RBS maintains access to various wholesale markets for funding, on both a public and private basis, across a range of currencies, geographies and maturities. These include long-term secured and unsecured debt, short-term money markets and repurchase agreements. RBS has set policies for the prudent use of wholesale funding, as part of its wider liquidity policies.
(5%) is restricted by regulatory requirements and assumed to only be available for use locally.
• not currently encumbered. In this category, RBS has in place an enablement programme which seeks to identify assets which are capable of being encumbered and to identify the actions to facilitate such encumbrance whilst not impacting customer relationships or servicing.
Deviations from plan are analysed to determine drivers which could be strategic, environmental or management-related. The monthly performance review process also includes the provision of monthly reports to the Executive Committees and the Board.
We have no appetite for actions that result in inappropriate outcomes for our customers or breach legal or regulatory requirements leading to censure or financial penalty
Operational risks may have a direct customer or reputational impact (for example, a major IT systems failure or fraudulent activity) or both. Operational risk failures may also have a link with conduct risk failures.
The successful execution of major projects, including the transformation plan, the restructuring of CIB and the divestment of Williams & Glyn is essential to meeting RBS’s strategic objectives. Operational Risk continued to oversee the implementation of these, ensuring the associated risks were assessed and understood with mitigating activity in place wherever possible.
Risks are mitigated through the application of key preventative and detective controls as an integral step in risk assessment methodology, to enable a determination of the residual risk.
RBS also undertakes a number of stress tests and scenario analyses on its material defined benefit pension schemes each year as part of its risk measurement framework. These stress tests are also used to satisfy the requests of regulatory bodies such as the Bank of England. The stress testing framework includes the production of the pension risk ICAAP as well as additional stress tests for a number of internal management purposes.
RBS uses a product and asset class framework to control credit risk for its Personal businesses. The framework sets limits that measure and control the quality of both existing and new business for each relevant franchise or segment.
CRA exclude issuer risk (primarily debt securities) and securities financing transactions. CRA take account of regulatory netting although, in practice, obligations are settled under legal netting arrangements that provide a right of legal set-off but do not meet the offset criteria under IFRS.
Before credit facilities are made available to customers a credit assessment is undertaken. The assessment process is the same for all customers. However, in RBS credit risk management is organised in terms of the complexity of the assessment rather than aligned to franchises. Capital Resolution is not managed separately but is shown in tables to aid understanding of the size of the exit portfolio. Credit is only granted to customers following joint approval by an approver from the business and the credit risk function.
Shipping valuations - Vessel valuations are performed by RBSapproved brokers. Each broker has a number of vessels to value according to its specific area of expertise. Valuations are undertaken on a desktop basis on a willing buyer/willing seller and charter-free basis. All valuations are in writing, instructed by and addressed to RBS. Valuations are performed on a quarterly basis. From time to time, particularly for facilities showing increased signs of financial stress, a more formal valuation will be obtained.
Customers managed in Capital Resolution are by their nature subject to heightened scrutiny and regular review against specific disposal plans. Capital Resolution customers are separately identified in RBS’s internal Watchlist reporting, with their
Where a solvent solution is not possible, insolvency may be considered as a last resort. However, helping the customer return to financial health and restoring a normal banking relationship is always the desired goal.
Wholesale renegotiations during the year by type (1,2) 2015 2014 £m £m
• The decrease in completed forbearance during 2015 compared with 2014 was in line both with improving market conditions, the RCR disposal strategy and portfolio reduction strategies. Year-on-year analysis of forborne loans may be skewed by individual material cases during a given year.
• Oil & Gas: CRA and TCE decreased significantly during 2015. This reflected proactive credit management, continued loan sales and run-off across the CIB portfolio in
Producers (incl. integrated oil companies) 1,139 114 1,137 4,996 1,309 8,695
The tables below provide a breakdown of Mining & Metals sector exposure (including committed but undrawn exposure) split by subsector and geography. The analysis is based on RBS’s sector concentration framework.
• Conditions remained severely depressed in the Dry Bulk sub-sector during 2015, with the Baltic Dry Index falling to a 35-year low as a result of vessel oversupply and a greaterthan -expected slowdown in commodity demand from
portfolio in container ships was insulated by long-term charters, providing more stable long-term fixed cash flows.
• The reduction in AQ10 assets during 2015 was predominantly due to RCR, within Capital Resolution, completing its targeted run-down by the end of 2015. AQ10 assets at 31 December 2015 totalled £362 million with provisions of £135 million.
PBB Bank RoI Banking RBSI W&G Total £m £m £m £m £m £m
to £104.8 billion. £90.7 billion (2014 - £84.5 billion) was owner-occupied and £14.1 billion (2014 - £11 billion) was buy-to-let. Of the total portfolio approximately £26 billion related to properties in the south east of England, while £20 billion related to properties in Greater London.
• At 31 December 2015, 26% of total mortgage assets (£3.5 billion) were subject to a forbearance arrangement, a decrease of 9% (£0.3 billion) from 31 December 2014.
• Spain - exposure decreased by £1.1 billion to £2.1 billion. This largely reflected reductions in corporate lending
(15%). Overall credit quality has remained broadly stable with about 77% (excluding cash and central bank balances)
£0.5 billion (relating to sale of Russian portfolio). Reductions in GTS and Shipping of £6.8 billion following customer winddowns as well as £10.6 billion of maturities and repayments across the loan portfolio in all regions also contributed to the significant reduction.
Europe of which: commercial real estate 7,902 6,908 5,202 87.4 75 65.8 (886) 702
Notes: (1) REIL are stated without giving effect to any security held that could reduce the eventual loss should it occur or to any provisions marked. (2) For details on impairment methodology refer to Credit risk on page 185 and Accounting policy 15 Impairment of financial assets on page 273.
• AFS: Increases were due to build up of AFS securities within the liquidity portfolio by Treasury for RBS. Assets underlying
Notes: (1) Designated as at fair value through profit or loss balances are £147 million (2014 - £301 million), of which £111 million are other financial institutions (2014 - £130 million) and £36 million are corporate (2014 - £171 million). (2) Includes government sponsored entities. (3) HFT short positions of £2 million (2014 - £211 million) included nil (2014 - £15 million) relating to non-periphery eurozone countries.
Notional GBP USD Euro Other Total Assets Liabilities Notional Assets Liabilities £bn £bn £bn £bn £bn £m £m £bn £m £m
• CVA decreased over the period, driven by market movements, principally interest rates, reducing net uncollateralised derivative exposures, realised default losses and tear-ups during 2015.
RBS trades credit derivatives to meet client needs and to mitigate its own credit risk. Credit derivative exposures relating to proprietary trading are minimal.
• Transactional foreign exchange risk - arising from customer transactions and profits and losses that are in a currency other than the functional currency of the transacting operation.
The Director of Market Risk cascades the limits further down the organisation as required. For each trading business, a document known as a dealing authority compiles details of all applicable limits and trading restrictions.
The market risk function also prepares daily risk reports that detail exposures against a more granular set of limits and triggers.
Actual and Hypo P&L for the legal entities approved by the PRA and De Nederlandsche Bank.
Scenario-based sensitivity analysis measures the sensitivity of the current portfolio to defined movements in market risk factors.
The following table analyses the principal contributors to the Pillar 1 model-based PRR presented in the previous table.
• The IRC fell by 17%, driven by a reduction in investment grade corporate bond inventory for the US business, in line with risk reduction strategy. In addition, the European market-making business slightly reduced its shorter-dated exposure to the eurozone periphery. The IRC figures presented in the table above differ from those in the table on the following page for the reasons explained in the note to that table. The average liquidity horizon by position at the year end was 3.2 months (2014 - 3.3 months).
NV, in line with strategy, and risk reduction in the US Rates and ABP businesses.
RBS uses both approaches to quantify its interest rate risk: VaR
dollar and sterling VaR, reflecting the disposal of Citizens and the risk management activity described above.
• Interest rate exposure remains asset sensitive, so that rising rates will have a positive impact on net interest income.
This is accomplished using a continuous rolling maturity programme, which is primarily managed by Treasury to achieve the desired profile. The maturity profile of the hedge aims to reduce the potential sensitivity of income to rate movements. The structural hedging programme is RBS-wide, capturing the position in the UK banking businesses and regulated subsidiaries in other jurisdictions.
Product structural hedges are used to minimise the volatility on earnings related to specific products, primarily customer deposits.
Notes: (1) RBS benefits from diversification as it reduces risk by allocating positions across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
The structured credit portfolio is measured on a notional and fair value basis due to its illiquid nature. Notional and fair value decreased to £39 million and £49 million respectively (2014 - £0.4 billion and £0.3 billion), reflecting the sale of underlying assets, primarily collateralised loan obligations, in line with
• The amount of the payment (or other economic outflow) can be estimated reliably.
We tested the design and operating effectiveness of the Group’s controls over the information systems that are critical to financial reporting and identified weaknesses in the access controls during the year, although many were fully resolved before the year end.
Recycled to profit or loss on disposal of businesses 4 — (3)
Annual Improvements to IFRS 2010 - 2012 and 2011 - 2013 cycles were issued in December 2013 making a number of minor amendments to IFRS.
Investment management - fees charged for managing investments are recognised as revenue as the services are provided. Incremental costs that are directly attributable to securing an investment management contract are deferred and charged as expense as the related revenue is recognised.
Short-term employee benefits, such as salaries, paid absences, and other benefits are accounted for on an accruals basis over the period in which the employees provide the related services.
Goodwill arising on the acquisition of associates is included within their carrying amounts. The gain or loss on the disposal of a subsidiary, associate or joint venture includes the carrying value of any related goodwill.
Protection Insurance, £996 million (2014 - £799 million), foreign exchange investigations, £306 million (2014 - £320 million), other customer redress, £672 million (2014 - £580 million) and other regulatory proceedings and litigation, £3,985 million (2014 - £1,988 million). Provisions are liabilities of uncertain timing or amount, and are recognised when there is a present obligation as a result of a past event, the outflow of economic benefit is probable and the outflow can be estimated reliably. Judgement is involved in determining whether an obligation exists, and in estimating the probability, timing and amount of any outflows.
The classification and measurement and impairment requirements are applied retrospectively by adjusting the opening balance sheet at the date of initial application, with no requirement to restate comparative periods. Hedge accounting is generally applied prospectively from that date.
May 2014. It will replace IAS 11 ‘Construction Contracts’, IAS 18
Changes in fair value of own debt and derivative liabilities attributable to own credit
Loss on disposal or settlement of loans and receivables (558) (232) (179)
Less: deferral of charge for amounts awarded for current year (97) (150) (230)
Less: forfeiture of amounts deferred from prior years (37) (64) (102) — —
The Group’s defined benefit schemes generally provide a pension of one-sixtieth of final pensionable salary for each year of service prior to retirement up to a maximum of 40 years.
shares into 5.1 billion new ordinary shares of £1 each. The conversion had no impact on earnings per share.
Note: (1) Includes items in the course of collection from other banks of £830 million (2014 - £980 million).
Such amounts are recognised in profit or loss over the life of the transaction; when market data becomes observable; or when the transaction matures or is closed out as appropriate. At 31
Notes: (1) Includes wholesale and retail note issuances. (2) The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserve is stated by conversion of underlying currency balances at spot rates for each period, whereas the income statement includes intra-period foreign exchange sell-offs.
(3) For an analysis of derivatives by type of contract refer to Capital and risk management - Balance sheet analysis - derivatives. (4) The determination of an instrument’s level cannot be made at a global product level as a single product type can be in more than one level. For example, a single name corporate credit default swap could be in Level 2 or Level 3 depending on whether the reference counterparty’s obligations are liquid or illiquid. (5) Sensitivity represents the favourable and unfavourable effect on the income statement or the statement of comprehensive income due to reasonably possible changes to valuations using reasonably possible alternative inputs in RBS’s valuation techniques or models. Level 3 sensitivities are calculated at a sub-portfolio level and hence these aggregated figures do not reflect the correlation between some of the sensitivities. In particular, for some portfolios, the sensitivities may be negatively correlated where a downward movement in one asset would produce an upward movement in another, but due to the additive presentation above, this correlation cannot be shown.
Amount recorded in the income statement (1) (973) (3) (976) (1,169) 107 (1) 106 1
Foreign exchange and other adjustments 9 — 9 1 (17) 25 8 19
Notes: (1) Includes £1 million relating to loans and advances to banks (2014 - £40 million). (2) The table above excludes impairments relating to securities.
For fair value hedge relationships of interest rate risk, the hedged items are typically large corporate fixed-rate loans, government securities, fixed rate finance leases, fixed rate medium-term notes or preference shares classified as debt. At 31 December 2015, fixed rate financial assets of £25 billion (2014 - £18 billion)
Dividend income from available-for-sale equity shares was £45 million (2014 - £30 million) in continuing operations and £15 million
Other intangible assets are reviewed for indicators of impairment. In 2015, £834 million (2014 - £401 million) of previously capitalised software was written-off primarily as a result of the reorganisation of CIB.
(Fair Value Hierarchy level 2: based on the quoted price of shares in Citizens Financial Group, Inc.) by £3,994 million and the carrying value of the assets and liabilities of the disposal group was adjusted by this amount. This loss was attributed to the intangible assets of the disposal group. The gain on disposal in 2015 comprised £248 million on the derecognition of assets and liabilities, and £989 million in respect of reserves reclassified in accordance with IFRS.
- National Westminster Bank Plc 628 768 - Ulster Bank Limited 31 —
from 1 April 2017 and to 18% from 1 April 2020. Under the
RBS’s involvement in client securitisations takes a number of forms. It may: sponsor or administer a securitisation programme; provide liquidity facilities or programme-wide credit enhancement; and purchase securities issued by the vehicle.
The table below analyses the asset categories for those ownasset securitisations where the transferred assets continue to be recorded on RBS’s balance sheet.
(including those claims specifically described in this note) involve the issuance of approximately US$43 billion of mortgage-backed securities (MBS) issued primarily from 2005 to 2007.
class action (Luther v. Countrywide Financial Corp. et al. and related class action cases) was settled in 2013 without any contribution from RBS, but several members of the settlement class are appealing the court-approved settlement to the United
In the coordinated proceeding, consolidated class action complaints were filed on behalf of (1) exchange-based purchaser plaintiffs, (2) over-the-counter purchaser plaintiffs, and (3)
In a series of orders issued in 2013 and 2014, the Court overseeing the coordinated USD proceeding dismissed class plaintiffs' antitrust claims and claims under RICO (Racketeer
RBS paid the total settlement amount (US$255 million) into escrow pending final court approval of the settlement. Other class action complaints, including a complaint asserting Employee
September 2014, that summary judgment ruling was vacated by the United States Court of Appeals for the Second Circuit. The appeals court returned the case to the trial court for consideration of NatWest's other asserted grounds for summary judgment and, if necessary, for trial.
Iran and certain Iranian banks to assist Iran in transferring money to Hezbollah and the Iraqi terror cells, in violation of the US Antiterrorism Act, by agreeing to engage in "stripping" of transactions initiated by the Iranian banks so that the Iranian nexus to the transactions would not be detected. On 2 April 2015, the plaintiffs filed an amended complaint adding Commerzbank as an additional defendant. On 29 May 2015, the defendants filed a motion to dismiss the amended complaint in this matter.
In certain instances where it is required to repurchase loans or related securities, CIB may be able to assert claims against third parties who provided representations or warranties to CIB when selling loans to it, although the ability to recover against such parties is uncertain. Between the start of 2009 and 31 December 2015, CIB received approximately US$753 million in repurchase demands in respect of loans made primarily from 2005 to 2008 and related securities sold where obligations in respect of contractual representations or warranties were undertaken by
The charged conspiracy occurred between as early as December 2007 to at least April 2010. Pursuant to the plea agreement
SME banking. On 6 November 2014, the CMA made its final decision to proceed with a MIR. On 22 October 2015 the CMA
The initial review was an exploratory exercise and focused primarily on competition in wholesale securities and investment markets, and related activities such as corporate banking. It commenced with a three month consultation exercise, including a call for inputs from stakeholders. Following this consultation period, the FCA published its feedback statement on 19 February 2015 which announced that the FCA is to undertake a market study into investment and corporate banking and potentially into asset management. The terms of reference for the investment and corporate banking market study were published on 22 May 2015. The FCA is intending to publish an interim report in March 2016. At this stage, as there remains considerable uncertainty around the outcome of these reviews it is not practicable reliably to estimate the aggregate impact, if any, on RBS which may be material.
The Enterprise Finance Guarantee (EFG) scheme is a government lending initiative for small businesses with viable business proposals that lack security for conventional lending. From 2009 until the end of 2015, RBS provided over £980 million of lending under the EFG scheme. RBS
Cost to acquire fixed acquire fixed acquire fixed assets and assets and assets and intangible intangible intangible Assets Liabilities assets Assets Liabilities assets Assets Liabilities assets £m £m £m £m £m £m £m £m £m
Currency translation and other adjustments — — 12 — — — 12
Write down of goodwill - continuing operations — — (498) — — — (498)
(Loss)/profit attributable to ordinary shareholders and other equity owners (1,982) 1,128 964
Customer accounts (2) - amortised cost Debt securities in issue - amortised cost 4,960 7,365 - designated as at fair value through profit or loss 89 145
Russia The Royal Bank of Scotland ZAO CI Singapore RBS Holding (Singapore) Private Ltd BF (3) Singapore The Royal Bank of Scotland Asia Merchant
Telford Homes (Stratford) Ltd OTH EAJV 50 The Appeal Group Ltd OTH IA 25 The Scottish Agricultural Securities Corporation P.L.C.
Group also booked in 2015 additional provisions of £600 million for Payment Protection Insurance, resulting in total provisions made for this matter of £4.3 billion, of which £3.3 billion had been utilised by 31 December 2015 and there remains a risk of future provisions and costs. The provision for interest rate hedging products redress and administration costs was also increased by £68 million (net of releases) in 2015, with total provisions relating to this matter totalling £1.5 billion, of which £1.35 billion had been utilised at 31 December 2015. Significant new provisions or increases in existing provisions relating to legal proceedings, investigations and governmental and regulatory matters may have a material adverse effect on the Group’s financial condition and results of operations as well as its reputation.
Furthermore, an essential precondition for a trade sale or IPO of
Implementation of the ring-fencing regime in the UK which began in 2015 and must be completed by 1 January 2019 will result in material structural changes to the Group’s business. These changes could have a material adverse effect on the Group.
Developments relating to current economic conditions and instability in financial markets, including those discussed above, could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
Group’s assets and higher levels of impairment allowances, which could have an adverse effect on the Group’s operations, financial position or prospects. As part of its ongoing derivatives operations, the Group also faces significant basis, volatility and correlation risks, the occurrence of which are also impacted by the factors noted above.
Factors affecting the current market price for such debt, such as the credit spreads of the Group, may result in a change to the fair value of such debt, which is recognised in the income statement as a profit or loss.
CET1 capital broadly comprises retained earnings and equity instruments, including ordinary shares. As a result, the Group may be required to issue additional ordinary shares in order to maintain or increase its CET1 capital if its retained earnings from the profits of its operations are insufficient, which could result in the dilution of existing shareholders.
RBS plc and other Group members, have been downgraded multiple times in recent years in connection with rating methodology changes and credit rating agencies’ revised outlook relating to regulatory developments, macroeconomic trends and a financial institution’s capital position and financial prospects.
Group’s IT investment programme. Should such investment and rationalisation initiatives fail to achieve the expected results, it could have a material adverse impact on the Group’s operations and its ability to retain or grow its customer business.”
The Group also takes measures to protect itself from attacks designed to prevent the delivery of critical business processes to its customers. Despite these preventative measures, the Group’s computer systems, software, networks and mobile devices, and those of third parties on whom the Group relies, are vulnerable to cyberattacks, sabotage, unauthorised access, computer viruses, worms or other malicious code, and other events that have a security impact.
Modern technologies, in particular online social networks and other broadcast tools which facilitate communication with large audiences in short time frames and with minimal costs, may also significantly enhance and accelerate the impact of damaging information and allegations. Reputational risks may also be increased as a result of the restructuring of the Group to implement its strategic programme and the UK ring-fencing regime. Although the Group has implemented a Reputational
In recent years, a number of multinational financial institutions, including the Group, have suffered material losses due to the actions of employees, including, for example, in connection with the foreign exchange and LIBOR investigations. It is not always possible to deter employee misconduct and the precautions the
The Group operates in highly competitive markets that are subject to intense scrutiny by the competition authorities and its business and results of operations could be materially affected by competition rulings and other government measures.
In addition, UKFI manages HM Treasury’s shareholder relationship with the Group and, although HM Treasury has indicated that it intends to respect the commercial decisions of the Group and that the Group will continue to have its own independent board of directors and management team determining its own strategy, should HM Treasury’s intentions change, its position as a majority shareholder (and UKFI’s position as manager of this shareholding) means that HM
Given the complexity of the Group’s business, strategy and capital requirements, the Group relies on analytical models to manage its business, assess the value of its assets and its risk exposure and anticipate capital and funding requirements, including with stress testing. The Group’s valuation, capital and stress test models and the parameters and assumptions on which they are based, need to be constantly updated to ensure their accuracy. Failure of these models to accurately reflect changes in the environment in which the Group operates or the failure to properly input any such changes could have an adverse impact on the modelled results or could fail to accurately capture the risk profile of the Group’s financial instruments. Some of the analytical models used by the Group are predictive in nature. The use of predictive models has inherent risks and may incorrectly forecast future behaviour, leading to flawed decision making and potential losses.
Other factors that could adversely affect our results and the accuracy of forwardlooking statements in this document include the risk factors and other uncertainties discussed in to this document. These include the significant risks for RBS presented by the outcomes of the legal, regulatory and governmental actions and investigations that RBS is subject to (including active civil and criminal investigations) and any resulting material adverse effect on RBS of unfavourable outcomes (including where resolved by settlement); the uncertainty relating to the referendum on the UK’s membership of the European Union and the consequences of it; the separation and divestment of Williams & Glyn; RBS’s ability to successfully implement the various initiatives that are comprised in its restructuring plan, particularly the proposed restructuring of its CIB
Latent loss provisions - loan impairment provisions held against impairments in the performing loan portfolio that have been incurred as a result of events occurring before the balance sheet date but which have not been identified at the balance sheet date.