Most general insurance contracts are written on an annual basis, which means that the Group’s liability extends for a 12 month period, after which the Group is entitled to decline or renew or can impose renewal terms by amending the premium, terms and conditions, or both.
The frequency and severity of claims and the sources of uncertainty for the key classes that the Group is exposed to are as follows: a) Motor insurance contracts (private and commercial)
The major causes of claims for property insurance are theft, flood, escape of water, fire, storm, subsidence and various types of accidental damage.
Other commercial claims come mainly from business interruption and loss arising from the negligence of the insured (liability insurance). Business interruption losses come from the loss of income, revenue and/or profit as a result of property damage claims. Liability insurance includes employers liability and public/products liability.
Sample UK mortality rates, expressed as deaths per million per annum, for term assurance products (age 40).
Westminster Life Assurance Limited, Royal Scottish Assurance plc (“RSA”) and Direct Line Life Insurance Company Limited, are required to meet minimum capital requirements at all times under the Financial Service Authority’s Prudential Sourcebook.
The Group’s long-term assurance contracts include whole-life, term assurance, endowment assurances, flexible whole life, pension and annuity contracts that are expected to remain in force for an extended period of time.
Interest rate and investment return Change in market interest rates of ±1%.
The above UK sensitivity factors are applied via actuarial and statistical models, with the following impact on the financial statements.
Sources of uncertainty in the estimation of future benefit payments and premium receipts – the Group uses base tables of standard mortality appropriate to the type of contract being written and the territory in which the insured person resides.
These are adjusted to reflect the Group’s experience, mortality improvements and voluntary termination behaviour.
Limitations of sensitivity analysis: the above tables demonstrate the effect of a change in a key UK assumption whilst other assumptions remain unaffected (assumptions related to ABN
The Group’s regulatory capital resources at 31 December in accordance with Financial Services Authority (‘FSA’) definitions were as follows: Composition of regulatory capital £m £m
Innovative tier 1 securities and preference shares transferred from subordinated liabilities 6,919 4,900
‘weighted’ to reflect the inherent credit and other risks); by international agreement, the RAR should be not less than 8%
Banking commitments and contingent obligations, which have been entered into on behalf of customers and for which there are corresponding obligations from customers, are not included in assets and liabilities. The Group’s maximum exposure to credit loss, in the event of non-performance by the other party and where all counterclaims, collateral or security proves valueless, is represented by the contractual nominal amount of these instruments included in the table. These commitments and contingent obligations are subject to the
Commitments to lend include commercial standby facilities and credit lines, liquidity facilities to commercial paper conduits and unutilised overdraft facilities.
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31 December. Although the Group is exposed to credit risk in the event of non-performance of the obligations undertaken by customers, the amounts shown do not, and are not intended to, provide any indication of the Group’s expectation of future losses.
– less than one year 184,791 — — — 184,791 140,742
Certain of the Group’s subsidiaries have received requests for information from various US governmental agencies and selfregulatory organisations including in connection with sub-prime mortgages and securitisations, collateralised debt obligations and synthetic products related to sub-prime mortgages. The
The Group earned fee income of £695 million (2006 – £472 million; 2005 – £366 million) from these activities.
Proceedings, including consolidated class actions on behalf of former Enron securities holders, have been brought in the
(including the Group) in the first half of 2007, the OFT issued proceedings in a test case against the banks including the
Group maintains that its charges are fair and enforceable and is defending its position vigorously. It cannot, however, at this stage predict with any certainty the outcome of the test case and is unable reliably to estimate the liability, if any, that may arise or its effect on the Group’s consolidated net assets, operating results or cash flows in any particular period.
United Kingdom and a number of overseas jurisdictions, including the United States, involving claims by and against them arising in the ordinary course of business. The Group has reviewed these other actual, threatened and known potential claims and proceedings and, after consulting with its legal advisers, does not expect that the outcome of these other claims and proceedings will have a material adverse effect on its consolidated net assets, operating results or cash flows in any particular period.
(Decrease)/increase in accruals and deferred income (818) 515 (1,200) — (27) 8
(Profit)/loss on sale of subsidiaries and associates (67) (44) 80 — — —
Profit on sale of securities (544) (369) (667) — — —
Elimination of foreign exchange differences (10,282) 4,516 (3,060) (58) (22) (30)
Increase/(decrease) in deposits by banks and customers 81,645 63,091 32,424 4,677 (164) 832
Increase/(decrease) in debt securities in issue 59,735 (4,457) 24,147 10,936 (803) 1,328
Treasury and other eligible bills and debt and equity securities 166,018 (3,804) — 162,214
Notes: (1) Following an agreement between Santander and Banca Monte dei Paschi di Siena S.p.A., it was announced on 10 November 2007 that Banca Antonveneta SpA., excluding its subsidiary Interbanca will be sold by ABN AMRO to Banca Monte dei Paschi di Siena S.p.A. for consideration of €9 billion (£6.6 billion). The sale of ABN AMRO’s asset management business to Fortis received approval from the Managing Board of ABN AMRO on 23 November 2007. These businesses and ABN AMRO’s private equity business have been classified as disposal groups on the acquisition of ABN AMRO. In addition, under the terms of the Consortium and Shareholders’ Agreement, consortium members other than the Group have agreed to acquire, in due course, various ABN AMRO businesses including operations in Brazil, the commercial and retail businesses in the Netherlands, the private clients business and Interbanca.
(2) The initial accounting for the acquisition has been determined provisionally because of its complexity and the limited time available between the acquisition and the preparation of these financial statements.
(5) ABN AMRO made a loss for the period since its acquisition of £123 million, of which £136 million was attributable to discontinued operations.
European banking group based in the Netherlands with subsidiaries that undertake commercial banking operations, investment banking and other related financial activities. The provisional fair values of ABN AMRO’s assets and liabilities at the date of acquisition and the consideration paid were as follows:
Net outflow of cash in respect of purchases (275) (21) (75)
Net inflow of cash in respect of disposals 102 308 108
Excluding the impact of the amortisation of fair value adjustments and funding costs, it is estimated that the Group would have reported total income of £40.7 billion and profit after tax from continuing operations for the year of £9.2 billion had all acquisitions occurred on 1 January 2007.
Group Company £m £m £m £m £m £m 35 Analysis of the net investment in business interests and intangible assets (continued)
F in a n c ia l s ta te m e n ts 37 Analysis of changes in financing during the year
Acquisition of subsidiaries 2,719 — 10,195 — 2,719 — — —
Currency translation and other adjustments 159 313 820 (2,329) 159 313 18 (900)
Certain subsidiary undertakings are required to maintain balances with the Bank of England which, at 31 December 2007, amounted to £439 million (2006 – £369 million). Certain subsidiary undertakings are required by law to maintain reserve balances with the Federal
had mandatory reserve deposits of €6 million at 31 December 2007.
The directors manage the Group primarily by class of business and present the segmental analysis on that basis.
The Group’s activities are organised as follows: • Global Banking & Markets is a leading banking partner to major corporations and financial institutions around the world, providing an extensive range of debt financing, risk management and investment services to its customers.
• RFS Holdings excluding minority interest comprises those activities of ABN AMRO that are attributable to the Group including investment banking, international cash payments and trade finance.
• UK Corporate Banking provides banking, finance and risk management services to UK corporate customers. Through its network of relationship managers across the country it distributes the full range of Corporate Markets’ products and services to companies.
• Retail comprises both the Royal Bank and NatWest retail brands, and a number of direct providers offering a full range of banking products and related financial services to the personal, premium and small business markets across several distribution channels. Retail also includes the Group’s non-branch based retail business, such as Tesco Personal
• Wealth Management provides private banking and investment services to its global clients through Coutts
Through its International Division, RBS Insurance sells general insurance, mainly motor, in Spain, Germany and Italy.
• Manufacturing supports the customer-facing businesses and provides operational technology, customer support in telephony, account management, lending and money transmission, global purchasing, property and other services.
Segments charge market prices for services rendered to other parts of the Group with the exception of Manufacturing and central items. The expenditure incurred by
Group Treasury, having regard to commercial demands. The results of each division before amortisation of purchased intangible assets, integration costs and net gain on sale of strategic investments and subsidiaries, and where appropriate, allocation of Manufacturing costs (‘Contribution’)
and after allocation of Manufacturing costs (‘Operating profit before tax’) are shown below.
Net and Depreciation Allocation of Operating interest Non-interest insurance and Impairment Manufacturing profit income income Total claims amortisation losses Contribution costs before tax 2007 £m £m £m £m £m £m £m £m £m
Note: (1) Segmental results for 2006 and 2005 have been restated to reflect transfers of businesses between segments in 2007.
Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing and intangible assets assets Assets liabilities liabilities Liabilities assets assets assets 2006 £m £m £m £m £m £m £m £m £m
Note: (1) Segmental results for 2006 have been restated to reflect transfers of businesses between segments in 2007.
Markets Banking Retail Management Bank Citizens Insurance AMRO items Total £m £m £m £m £m £m £m £m £m £m
The geographical analyses in the tables below have been compiled on the basis of location of office where the transactions are recorded.
Insurance premium income (net of reinsurers’ share) 5,562 — 525 22 6,109
Cost to acquire property, plant and equipment and intangible assets 3,305 238 1,793 225 5,561
UK USA Europe the World Total 2005 £m £m £m £m £m
Net assets attributable to equity owners and minority interests 19,381 14,325 3,676 162 37,544
Cost to acquire property, plant and equipment and intangible assets 3,353 337 1,581 17 5,288 40 Directors’ and key management remuneration
– contributions and allowances in respect of defined contribution pension schemes 30 101
The executive directors may also participate in the company’s executive share option and sharesave schemes and details of their interests in the company’s shares arising from their participation are given on page 111. Details of the remuneration received by each director during the year and each director’s pension arrangements are given on pages 110 to 114.
The aggregate remuneration of directors and other members of key management during the year was as follows: Group
(a) At 31 December 2007, the amounts outstanding in relation to transactions, arrangements and agreements entered into by authorised institutions in the Group, as defined in UK
Pension Fund with the cost of administration services incurred by it. The amounts involved are not material to the
Summary consolidated income statement – IFRS $m £m £m £m £m
Profit attributable to: Notes: (1) Includes gain on sale of strategic investment of £333 million in 2005.
Summary consolidated balance sheet – IFRS $m £m £m £m £m
Derivatives, settlement balances and short positions 839,520 423,081 167,588 140,426 51,866
Diluted earnings per ordinary share – pence (1) 75.7 64.4 56.1 52.0
Net asset value per ordinary share – £ 4.47 3.86 3.38 3.09
Adjusted return on average ordinary shareholders’ equity (5) 19.9% 19.0% 18.2% 18.9%
Average owners’ equity as a percentage of average total assets 3.7% 4.4% 4.5% 5.9%
Notes: (1) All the convertible preference shares have a dilutive effect in 2007, 2006 and 2005 and as such have been included in the computation of diluted earnings per share. In 2004 their effect was anti-dilutive.
(5) Adjusted return on average ordinary shareholders’ equity represents profit attributable to ordinary shareholders before discontinued operations, integration costs, amortisation of purchased intangibles and net gain on sale of strategic investments and subsidiaries expressed as a percentage of average ordinary shareholders’ equity.
The following table analyses loans and advances to customers before provisions by remaining maturity, geographical area and type of customer. Overdrafts are included in the ‘Within 1 year’ category.
Within but within After 2007 £m £m £m £m £m £m £m
Service industries and business activities 21,194 15,471 17,300 53,965 43,887 40,687 30,867
Finance leases and instalment credit 2,476 6,045 7,111 15,632 14,218 13,909 13,044
For a discussion of the factors considered in determining the amount of the provisions, see ‘Loan impairment’ on page 77 and
Notes: (1) Includes closing provisions against loans and advances to banks of £3 million (2006 – £2 million; 2005 – £3 million; 2004 – £6 million).
The following table shows additional information in respect of the loan impairment provisions. IFRS
As a % of average loans and advances to customers during the year: Total customer provisions charged to income statement 0.37% 0.42% 0.42% 0.47%
% of loans % of loans % of loans % of loans
Closing to total Closing to total Closing to total Closing to total provision loans provision loans provision loans provision loans
Finance leases and instalment credit 8 12 7 2 219RBS Group • Annual Report and Accounts 2007
Risk elements in lending as a % of gross lending to customers excluding reverse repos 1.55% 1.55% 1.60% 1.83%
The figures are stated before deducting the value of security held or related provisions.
(or a group of financial assets) after impairment at the rate of interest used to discount recoveries when measuring the impairment loss. Thus, interest on impaired financial assets is credited to profit or loss as the discount on expected recoveries unwinds. Despite this, such assets are not considered performing. All loans that have an impairment provision are classified as non-accrual. This is a change from practice in 2004 and earlier years where certain loans with provisions were classified as past due 90 days or potential problem loans (and interest accrued on them).
The following table shows the distribution of the Group’s deposits by type and geographical area: IFRS
Approximate weighted average interest rate during the year 4.8% 4.9% 3.7%
‘Deposits by banks’ and ‘Customer accounts’ in the accounts, and generally have original maturities of one year or less.
The following table shows details of the Group’s certificates of deposit and other time deposits over $100,000 or equivalent by remaining maturity. Over 3 months Over 6 months
A d d it io n a l in fo rm a ti o n
Share price per ordinary share at period end – £ 5.84 5.49
Notes: (1) Convertible preference shares have not been included in the computation of diluted earnings per share as their effect was anti-dilutive.
(2) Dividend payout ratio represents the interim dividend paid and the current year final dividend proposed as a percentage of profit attributable to ordinary shareholders before integration costs, goodwill amortisation, and the AVS dividend in 2003, (net of tax).
dividend, in 2003 expressed as a percentage of average equity shareholders’ funds.
The following table shows the elements of provisions for bad and doubtful debts under UK GAAP.
Notes: (1) Includes closing provisions against loans and advances to banks of £6 million in 2004 (2003 – £7 million).
Customer provision at end of year as % of loans and advances to customers at end of year: Specific provisions 1.04% 1.31%
The following table analyses recoveries of amounts written-off by geographical area and type of domestic customer.
The Group’s loan control and review procedures do not include the classification of loans as non-accrual, accruing past due, restructured and potential problem loans, as defined by the SEC in the US. The following table shows the estimated amount of loans that would be reported using the SEC’s classifications. The figures incorporate estimates and are stated before deducting the value of security held or related provisions.
Loans accounted for on a non-accrual basis (3): Accruing loans which are contractually overdue 90 days or more as to principal or interest (4): Loans not included above which are classified as ‘troubled debt restructurings’ by the SEC: Total risk elements in lending 5,529 5,157
Closing provisions for bad and doubtful debts as a % of total risk elements in lending and potential problem loans 73% 68%
Risk elements in lending as a % of gross loans and advances to customers excluding reverse repos 1.86% 2.22%
and through those offices in the UK specifically organised to service international banking transactions.
(3) The Group’s UK banking subsidiary undertakings account for loans on a non-accrual basis from the point in time at which the collectability of interest is in significant doubt.
Certain subsidiary undertakings of the Group, principally Citizens, generally account for loans on a non-accrual basis when interest or principal is past due 90 days.
(4) Overdrafts generally have no fixed repayment schedule and consequently are not included in this category.
Average rate for the period (1) 2.0073 1.8582 1.8147 1.8356 1.6450
Notes: (1) The average of the Noon Buying Rates on the last business day of each month during the period.
(2) The rates used by the Group for translating US dollars into sterling in the preparation of its financial statements.
The Group’s earnings are affected by the economic and monetary environment in its key markets (UK, US, Eurozone and Asia Pacific).
Global financial markets entered a period of unprecedented strain in the second half of 2007, with reference interbank lending rates spiking sharply and parts of the short-term money market seizing up. This temporarily tightened monetary conditions, affecting credit supply and denting investor risk appetite, at a time when a slowdown in global economic activity had started. After a series of individual efforts, central banks in Canada, the Eurozone, Switzerland, the UK and the
US intervened in concert to improve liquidity conditions in money markets in December. This measure was successful in bringing interest rate spreads in interbank markets back towards historic averages, but uncertainties about the full impact on the real economy and the future evolution of debt markets remain.
The UK interest rate cycle peaked in 2007, with the Monetary
July, before cutting it back to 5.50% in December and most recently to 5.25% in February. The rate increases were due to a combination of above-trend growth at 3.1% and CPI-inflation exceeding the official target of 2% for most of the year on the back of high commodity prices. Upside risks to inflation over the medium-term prevailed, preventing the MPC from cutting more aggressively in response to the liquidity squeeze in financial markets in December. On balance, monetary conditions were probably in restrictive territory in 2007, which is expected to lead to slower growth in 2008. Sterling’s 6%
US monetary conditions were close to neutral at the start of 2007, with policy rates on hold at 5.25% until the onset of the liquidity crisis in August. A marked slowdown in the US
housing market, deterioration in consumer and business confidence and the liquidity squeeze in financial markets prompted the Federal Open Market Committee (FOMC) to bring the federal funds rate down to 4.25% by the end of the year. Despite a 10% decline in the value of the dollar on a trade-weighted basis and the resulting stimulus for US exports, the overall outlook for the US economy darkened materially in the first two months of 2008. The FOMC continued to react aggressively in the face of more evidence of downside risks to economic growth, and further reduced the policy rate by 125bps at two meetings in January, bringing it to 3.00% at the end of February 2008. Even though CPI-inflation ran above 4%
Against the backdrop of robust demand, and an upward trend in CPI-inflation, the European Central Bank raised the official refinancing rate twice in the first half of 2007, from 3.5% to 4%, and staying on hold for the rest of the year. Rapid economic growth in emerging market economies resulted in strong demand for Eurozone export goods, despite a 5%
trade-weighted appreciation of the euro. Overall, the Eurozone appeared to be less affected by the liquidity squeeze than the
Asia Pacific was the most dynamic region in 2007, with economic growth outpacing the rate of expansion recorded in other regions. Exports remained the main driver of economic growth, resulting in a large current account surplus, and corresponding inflows of foreign exchange into the region.
Some countries in the region continued to manage their currencies, to prevent appreciation. This loosening of monetary conditions boosted domestic investment. Inflationary pressures started to emerge, possibly requiring a tighter stance of monetary policy further out.
Group’s non-UK subsidiaries, and the value of non-sterling denominated assets and liabilities. Sterling remained strong against the dollar in 2007, gaining another 1%, but slipped by 8% against the euro. These movements have mixed effects on the Group’s reported earnings, assets and liabilities, boosting their sterling-value when denominated in euro but depressing their sterling-value when denominated in dollars.
Supervision and regulation 1. United Kingdom 1.1 Authorised firms in the Group
(excluding subsidiaries of the ABN AMRO Group), spanning a range of financial services sectors (banking, insurance and investment business), were authorised to conduct financial activities regulated by the FSA.
Ireland while the banking service to the Republic of Ireland is provided by Ulster Bank Ireland Ltd which is primarily supervised by the Irish Financial Services Regulatory
General insurance business is principally undertaken by companies in the RBS Insurance division, including Direct
II. This puts us among the small number of UK financial services organisations that are using Advanced Internal
European level, which is now implemented in the UK, for the establishment and conduct of investment firms, multilateral trading facilities and regulated markets.
UK FSA authorised firms must also comply with rules designed to reduce the scope for firms to be used for financial crime and in particular money laundering.
Directive. Amongst their other provisions, the Regulations endorse a risk based approach to combating money laundering, while also prescribing ‘enhanced due diligence’ for non face to face customers, ‘politically exposed persons’ (PEPs) and correspondent banking.
Whilst for all material purposes the Group is already compliant – these provisions having been anticipated in industry guidance for some time – internal processes are continually reviewed to ensure best practice standards are met. In particular, the Group has issued new internal policy guidelines based on the regulations and supporting industry guidance against which all divisions have undertaken a gap analysis as a basis for further action plans where necessary.
The Commissioner reports directly to Parliament and has the power to order compliance, using enforcement and prosecution. The Group takes data protection very seriously and follows the guidance provided by the ICO.
The Group continues to improve its processes in line with changing guidelines and in order to meet customers increasing expectations in relation to information security.
Among other things, the Group’s direct and indirect activities and investments in the United States are limited to those that are ‘financial in nature’ or ‘incidental’ or
‘complementary’ to a financial activity, as determined by the Federal Reserve. The Group is also required to obtain the prior approval of the Federal Reserve before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of the voting shares of any US bank or bank holding company.
Under current Federal Reserve policy, the Group is required to act as a source of financial strength for its US
bank subsidiaries. Among other things, this source of strength obligation could require the Group to inject capital into any of its US bank subsidiaries if any of them became undercapitalised.
Citizens, NA. As a result, RBS Citizens, NA is now supervised by the Office of the Comptroller of the
Currency, a bureau of the US Department of the Treasury charged with the regulation and supervision of nationally chartered banks. Citizens Financial Group remains under the supervision of the Federal Reserve as a bank holding company. Citizens Bank of Pennsylvania is subject to the regulation and supervision of the Pennsylvania Department of Banking and the US Federal Deposit Insurance
New York State Banking Department, and its Connecticut branch is supervised by the Connecticut Department of
Banking. Both branches are also subject to supervisory oversight by the Federal Reserve, through the Federal
The Group’s US insurance agencies are regulated by state insurance authorities. The Group’s US broker dealer,
Markets, Inc. is also subject to regulation and oversight by the US Commodity Futures Trading Commission and the
Group and its subsidiaries are cooperating with these various requests for information and investigations.
The Group operates from a number of locations worldwide, principally in the UK. At 31 December 2007, the Royal Bank and NatWest had 649 and 1,629 retail branches, respectively, in the UK. Ulster Bank and First Active had a network of 282 branches in Northern Ireland and the Republic of Ireland.
Citizens had 1,616 retail banking offices (including in-store branches) covering Connecticut, Delaware, Illinois, Indiana,
Royal Bank, NatWest and their subsidiaries or are held under leases with unexpired terms of over 50 years. The Group’s principal properties include its headquarters at Gogarburn,
Details of major shareholders of the company’s ordinary and preference shares are given on page 98.
There have been no significant changes in the percentage ownership of major shareholders of the company’s ordinary and preference shares during the three years ended 27 February 2008. All shareholders within a class of the company’s shares have the same voting rights. The company is not directly or indirectly owned or controlled by another corporation or any foreign government and the company is unaware of any arrangement which might result in a change of control.
As at 31 December 2007, almost all of the company’s US$
The company and its subsidiaries are party to various contracts in the ordinary course of business. During the year ended 31 December 2007, the company entered into a
F-4, as amended (Reg. No. 333-144752). Other than the aforementioned agreement, there have been no material contracts entered into outside the ordinary course of business.
Shareholder information 236 Financial calendar 236 Shareholder enquiries 237 Capital gains tax 238 Analyses of ordinary shareholders 239 Trading market 242 Dividend history 243 Taxation for US Holders 247 Exchange controls 247 Memorandum and Articles of Association 247 Incorporation and registration 247 Code of ethics 248 Important addresses 248 Principal offices
Non-cumulative preference shares 31 March, 30 June, 30 September and 31 December 2008
Shareholders wishing to receive payment in either US dollars or euros should request an instruction form from the company’s registrar: Computershare Investor Services PLC
Shareholders may also download an instruction form via our website (www.rbs.com/shareholder).
ShareGift, the charity share donation scheme is a free service operated by The Orr Mackintosh Foundation (registered charity 1052686) to enable shareholders to donate shares to charity.
Additional Value Shares on 12 July 2000 and the bonus issue of ordinary shares on 8 May 2007, the adjusted 31 March 1982 base value of one ordinary share held currently is 15.4p.
March 1982, the market value of one ordinary share held was 28.39p for shareholders who accepted the basic terms of the
RBS offer. This takes account of the August 1984 and June 1986 rights issues and the June 1989 bonus issue of NatWest ordinary shares as well as the subsequent issue of Additional
Value Shares and the bonus issue of ordinary shares on 8 May 2007.
When disposing of shares, shareholders are also entitled to indexation allowance (to April 1998 only in the case of individuals and non-corporate holders), which is calculated on the 31 March 1982 value, on the cost of subsequent purchases from the date of purchase and on the subscription for rights from the date of that payment. Further adjustments must be made where a shareholder has chosen to receive shares instead of cash for dividends. Individuals and noncorporate shareholders may also be entitled to some taper relief to reduce the amount of any chargeable gain on disposal of shares.
The information set out above is intended as a general guide only and is based on current United Kingdom legislation and HM Revenue & Customs practice as at this date. This information deals only with the position of individual shareholders who are resident in the United
Kingdom for tax purposes, who are the beneficial owners of their shares and who hold their shares as an investment.
Analyses of ordinary shareholders at 31 December 2007 Number of shares
On 26 March 1997, 8 February 1999, 30 September 2004, 26 August 2004, 19 May 2005, 9 November 2005, 25 May 2006, 27 December 2006, 28 June 2007, 27 September 2007 and 4 October 2007 the company issued the following
Each of the respective ADSs set out above represents the right to receive one corresponding preference share, and is evidenced by an American Depositary Receipt (“ADR”) and is listed on the New York Stock Exchange, a subsidiary of NYSE
York, as depository, and all holders from time-to-time of ADRs issued thereunder. Currently, there is no non-United States trading market for any of the non-cumulative dollar preference shares. All of the non-cumulative dollar preference shares are held by the depository, as custodian, in bearer form.
In January 2007, the company redeemed the 8 million Series E
At 31 December 2007, there were 100 registered shareholders of Series F ADSs, 63 registered shareholders of Series H
ADSs, 25 registered shareholders of Series L ADSs, 1 registered shareholder of Series M ADSs, 47 registered shareholders of Series N ADSs, 55 registered shareholders of
Series P ADSs, 17 registered shareholders of Series Q ADSs, 1 registered shareholder of Series R ADSs, 1 registered shareholder of Series S ADSs, 23 registered shareholders of
On 17 October 2007, the company listed ADSs, each representing one ordinary share, nominal value 25p each (or a right to receive one ordinary share), and evidenced by an ADR
or uncertificated securities, on the NYSE. On the same day, trading commenced on a ‘when issued’ basis and on 18
The ADSs described in the above paragraph were issued pursuant to a Deposit Agreement, among the company, The
Bank of New York Mellon, as depositary, and all owners and holders from time to time of ADSs issued thereunder. The ordinary shares of the company are listed and traded on the
London Stock Exchange. All ordinary shares are deposited with the principal London office of The Bank of New York
The following table shows, for the periods indicated, the high and low sales prices for the company’s ordinary shares on the London
The following table shows, for the periods indicated, the high and low sales prices for the company’s ordinary ADSs, as reported on the NYSE composite tape: On 26 February 2008, the closing price of ordinary ADSs on the New York Stock Exchange was $8.34.
Subordinated Subordinated Subordinated liabilities Equity liabilities Equity liabilities Equity 2004 2003
– Series B (redeemed January 2003) — — — — — 0.13
– Series C (redeemed January 2003) — — — — — 0.11
– Series S (issued June 2007) 0.83 0.41 — — — —
Total dividends on equity shares 65.9 33.2 30.2 24.2 19.3 16.8
Notes: (1) Each American Depositary Share represents one ordinary share. The historical amounts listed in the table apply to the ordinary shares, as the American Depositary Shares were not issued until October 2007 as described above under Trading Market.
UK tax consequences of the acquisition, ownership and disposition of ordinary shares, non-cumulative dollar preference shares, ADSs representing ordinary shares
States or that otherwise will be subject to US federal income tax on a net income basis in respect of the ordinary shares, non-cumulative dollar preference shares, ordinary ADSs, preference ADSs or PROs (a “US Holder”). This summary assumes that a US Holder is holding ordinary shares, noncumulative dollar preference shares, ordinary ADSs, preference ADSs or PROs, as applicable, as capital assets.
generally, that is a corporation which alone or together with one or more associated companies, controls, directly or indirectly, 10% or more of the voting stock of the company.
“Estate Tax Treaty”), are based on those laws and practices as in force and as applied in practice on the date of this Report.
For the purposes of the Treaty, the Estate Tax Treaty and the
US Holders of ordinary ADSs and preference ADSs should be treated as owners of the ordinary shares and the noncumulative dollar preference shares underlying such ADSs.
ADSs are pre-released or intermediaries in the chain of ownership between US Holders and the issuer of the security underlying the ADSs may be taking actions that are inconsistent with the claiming of foreign tax credits for US
The company is not required to withhold UK tax at source from dividend payments it makes or from any amount (including any amounts in respect of accrued dividends) distributed by the company. US Holders who are not resident or ordinarily resident in the UK and who do not carry on a trade, profession or vocation in the UK through a branch, agency or permanent establishment in connection with which their ordinary shares, non-cumulative preference shares, ordinary ADSs or preference ADSs are held used or acquired will not be subject to UK tax in respect of any dividends received on the relevant shares or ADSs.
Distributions by the company will constitute foreign source dividend income for US federal income tax purposes to the extent paid out of the current or accumulated earnings and profits of the company, as determined for US federal income tax purposes. Because the company does not maintain calculations of its earnings and profits under US federal income tax principles, it is expected that distributions will be reported to US Holders as dividends. Payments will not be eligible for the dividends-received deduction allowed to corporate US Holders.
Subject to applicable limitations that may vary depending upon a holder’s individual circumstances, dividends paid to certain non-corporate US Holders in taxable years beginning before 1 January 2011 will be taxable at a maximum tax rate of 15%.
Non-corporate US Holders should consult their own tax advisers to determine whether they are subject to any special rules that limit their ability to be taxed at this favourable rate.
Dividends will be included in a US Holder’s income on the date of the US Holder’s (or in the case of ADSs, the Depositary’s)
Holder carries on a trade in the UK through a permanent establishment or, in the case of any other US Holder, such US
through a UK branch or agency and such ordinary share, non-cumulative dollar preference share, ordinary ADS or preference ADS is or has been used, held or acquired by or for the purposes of such trade (or profession or vocation), permanent establishment, branch or agency. Special rules apply to individuals who are temporarily not resident or ordinarily resident in the UK.
Holder does not own, and is not deemed to own, any ordinary shares or ordinary ADSs of the company) in an amount equal to the difference between the amount realised (excluding in the case of a redemption any amount treated as a dividend for US
If a corporate US Holder is subject to UK corporation tax by reason of carrying on a trade in the UK through a permanent establishment and its ordinary share, non-cumulative dollar preference share or ADS is, or has been, used, held or acquired for the purposes of that permanent establishment, certain provisions introduced by the Finance (No. 2) Act 2005 will apply if the US Holder holds its ordinary share, noncumulative dollar preference share or ADS for a “tax avoidance purpose”. If these provisions apply, dividends on the ordinary share, non-cumulative dollar preference share, ordinary ADS or preference ADS, as well as certain fair value credits and debits arising in respect of such share or ADS, will be brought within the charge to UK corporation tax on income and the UK tax position outlined in the preceding paragraphs will not apply in relation to such US Holder.
An ordinary share, a non-cumulative dollar preference share, an ordinary ADS or a preference ADS beneficially owned by an individual, whose domicile is determined to be the United
States for purposes of the Estate Tax Treaty and who is not a national of the UK, will not be subject to UK inheritance tax on the individual’s death or on a lifetime transfer of such share or
Treaty generally provides a credit against US federal estate or gift tax liability for the amount of any tax paid in the UK in a case where the ordinary share, non-cumulative dollar preference share, ordinary ADS or preference ADS is subject to both UK inheritance tax and US federal estate or gift tax.
Holder who is entitled under the Treaty to a refund of UK tax, if any, withheld on a payment will not be entitled to claim a foreign tax credit with respect to such tax.
Subject to applicable limitations that may vary depending upon a holder’s individual circumstances, dividends paid to certain non-corporate US Holders in taxable years beginning before 1
January 2011 will be taxable at a maximum tax rate of 15%.
In addition, bills have been introduced in both the US House and the US Senate which would, if enacted, deny the favourable tax rates described in the preceding paragraph for dividends paid in respect of certain securities, including securities such as PROs, where the issuer of the securities is allowed a deduction under the tax laws of a foreign country with respect to such dividend. The proposed legislation would apply to dividends received after the date of its enactment. It is not possible to predict whether the proposed legislation will be enacted, either in its present form or any other form. Noncorporate US Holders should consult their tax advisers with respect to the potential enactment of currently proposed legislation and its application in their particular circumstances.
PROs remain at all times listed on a ‘recognised stock exchange’ within the meaning of section 1005 of the Income
Tax Act 2007. In all other cases, an amount must be withheld on account of UK income tax at the savings rate (currently 20%) subject to any direction to the contrary by HM Revenue
& Customs under the Treaty and except that the withholding obligation is disapplied in respect of payments to persons who the company reasonably believes are within the charge to corporation tax or fall within various categories enjoying a special tax status (including charities and pension funds), or are partnerships consisting of such persons (unless HM
Customs. HM Revenue & Customs may communicate this information to the tax authorities of other jurisdictions.
Revenue & Customs has confirmed that a company holding an interest in the PROs which incidentally has banking facilities with any company associated with the company will not be a
Holder, such US Holder carries on a trade in the UK through a
Holders, such persons carry on a trade, profession or vocation in the UK through a UK branch or agency in connection with which the interest is received or to which the PROs are attributable. There are exemptions for interest received by certain categories of agents (such as some brokers and investment managers).
Belgium, Luxembourg and Austria may instead impose a withholding system for a transitional period unless during such period they elect otherwise.
US Holder will not give rise to any liability to UK taxation on capital gains unless the US Holder carries on a trade (which for this purpose includes a profession or a vocation) in the UK
A transfer of PROs by a US Holder will not give rise to a charge to UK tax on accrued but unpaid interest payments, unless the US Holder is an individual or other non-corporate taxpayer and at any time in the relevant year of assessment or accounting period carries on a trade in the UK through a branch or agency to which the PROs are attributable.
Corporate US Holders of PROs may be subject to annual UK
Inheritance tax is not generally chargeable on gifts to individuals made more than seven years before the death of the donor. However, exemption from, or a reduction of, any such UK tax liability may be available under the Estate Tax
Treaty (see below). US Holders should consult their professional advisers in relation to such potential liability.
PROs beneficially owned by an individual, whose domicile is determined to be the United States for the purposes of the
Estate Tax Treaty and who is not a national of the UK, will not be subject to UK inheritance tax on the individual’s death or on a lifetime transfer of the PRO, except in certain cases where the PRO (i) is comprised in a settlement (unless, at the time of the settlement, the settlor was domiciled in the United States and was not a national of the UK); (ii) is part of the business property of a UK permanent establishment of an enterprise; or
ADSs, preference ADSs or PROs, US Holders would generally be subject to adverse US federal income tax consequences.
Holders should consult their own tax advisers as to the potential application of the PFIC rules to the ownership and disposition of the company’s ordinary shares, non-cumulative dollar preference shares, ordinary ADSs, preference ADSs or
S h a re h o ld e r in fo rm a ti o n
The company has been advised that there are currently no UK
Association as in effect at the date of this annual report are registered with the Registrar of Companies of Scotland. The
Articles of Association were last amended on 29 April 2004 and have been filed with the SEC.
As discussed on page 95, the Group has adopted a code of ethics that is applicable to all of the Group’s employees, which will be provided to any person without charge, upon request, by contacting Group Secretariat at the telephone number listed on page 248.