The RBS Group (RBS) is a UK-based banking and financial services company. Headquartered in Edinburgh, the Group operates in the United Kingdom, Europe, the Middle East, the Americas and Asia, serving over 30 million customers worldwide.
Loan:deposit ratio (%) 82 86 see page 23 for further information
We offer a core banking proposition to multi-national corporates and financial institutions by providing debt financing, risk management and transaction services. We work with clients to find the best product mix to execute their strategy.
RBS is now safer and the day when we will be able to offer shareholders a decent return is closer. But making RBS a really good bank demands more. That is why we are investing more effort still in all of our businesses to serve customers well.
Our exit from the APS in 2012, after paying the Government £2.5 billion, was another major milestone. The next step is to make RBS attractive enough to allow the UK Government to consider selling some of its shares in the bank.
The UK Government created UK Financial Investments (UKFI) to manage its shareholdings in financial institutions.
When we speak to our investors, some questions are asked more often than others. Below we provide a selection of those frequently asked questions and answers
Limit over-reliance on wholesale markets to meet the Group’s funding requirements, while building up an appropriate liquidity reserve. Generate a stable deposit base to fund each business.
Deliver on the Group’s cost programmes, whilst making essential investments in our businesses. Achieve a cost:income ratio that places RBS among the most efficient of its global peers.
In this time we have also ramped up our investment in these businesses, spending on enhancing customer experience, developing IT infrastructure and transforming our front and back office functions.
Loss characteristics vary materially across portfolios. Significant link between losses and the macroeconomic environment.
We built on the significant progress we have made on credit risk over the last few years. We live within the risk limits we have set and we are confident that we would remain profitable in a stressed environment.
We have increased our focus in the areas of Anti-Money Laundering, Sanctions, Conflicts Management, Information Security, Records Management and Data Quality, and have implemented new credit processes to improve the quality and speed of our credit decisions.
We have reintroduced banking apprenticeships. In November, we recruited an initial 16 young unemployed people under the Evening Standard’s Ladder for London and the City Gateway Initiative. This is part of RBS’s wider strategy to support young people as they move from school to work.
Risk continued to influence the pay and reward process at senior levels through input to objective setting and performance feedback. There is risk assessment of incentive schemes and bonus pools, 360 degree feedback and performance management. This helps drive behavioural change. Our conduct risk policy will focus on behaviours and the “how” part of the way we do things.
Following the placing and open offers in December 2008 and in April 2009, HM Treasury owned approximately 70.3% of the enlarged ordinary share capital of the company. In December 2009, the company issued a further £25.5 billion of new capital to HM Treasury. This new capital took the form of B shares, which do not generally carry voting rights at general meetings of ordinary shareholders but are convertible into ordinary shares and qualify as Core Tier 1 capital. Following the issuance of the B shares, HM Treasury's holding of ordinary shares of the company remained at 70.3% although its economic interest rose to 84.4%.
Our wholesale business retains its international footprint ensuring that it can serve our customers' needs globally. We believe that, despite current challenges to the sector, wholesale banking services can play a central role in supporting cross border trade and capital flows, financing requirements and risk management and we remain committed to this business.
* On a statutory basis, operating loss excludes the results of Direct Line Group.
Non-interest income Non-interest income decreased by £928 million in 2012 principally driven by lower net fees and commissions and a fall in insurance net premium income. Net fees and commissions fell largely due to weaker consumer spending volumes in the UK together with legislation changes in the US. Insurance net premium income was down primarily due to lower written premiums in Direct Line Group.
2011 compared with 2010 - managed Operating profit Group operating profit, excluding own credit adjustments, Asset Protection Scheme, PPI costs, sovereign debt impairment, interest rate hedge adjustments on impaired available-for-sale sovereign debt, amortisation of purchased intangible assets, integration and restructuring costs, gain on redemption of own debt, strategic disposals, bank levy, bonus tax, write-down of goodwill and other intangible assets and RFS holdings minority interest was £1,824 million compared with £1,845 million in 2010. Adjusting for the impact of the disposal of GMS in 2010, which recorded an operating profit of £207 million, Group operating profit was up 11%. The improvement was driven by a strong Retail & Commercial (R&C) operating performance and the return to profit of Direct Line Group. Ulster Bank and Markets faced more difficult conditions, leaving total Core operating profit at £6,045 million. Non-Core operating loss in 2011 was 26% lower compared with 2010, despite the acceleration of disposals in the second half of the year.
Total income Total income decreased 7% to £24,651 million in 2011.
Non-interest income Non-interest income decreased to £12,348 million from £12,840 million in 2010. This included movements in the fair value of the Asset Protection Scheme resulting in a £906 million charge (2010 - £1,550 million), gain on redemption of own debt of £255 million (2010 - £553 million) and a gain on movements in own credit adjustments of £1,914 million (2010 - £242 million gain). Excluding these items, non-interest income was down 18% primarily reflecting a reduction in income from trading activities and lower net fees and commissions.
Risk elements in lending represented 8.6% of gross loans and advances to customers excluding reverse repos at 31 December 2011 (2010 - 7.3%).
However, the business has also had setbacks in the year. Customers suffered from disruptions to payment systems in June. Throughout this time UK Retail staff worked tirelessly to deal quickly with the issues and provide full redress and compensation to customers affected. In addition, the provision relating to historic Payment Protection Insurance (PPI) misselling was increased by £1.1 billion in 2012, bringing total PPI expense to date to £2.2 billion. This expense is not included in operating profit. With the new UK conduct regulator examining many products and services along with associated disclosures and sales practices, there are likely to be further impacts to business practices and potential additional costs of redress. The business is actively working to ensure its products set and sales practices are appropriate.
Expenses also increased as a result of client redress following a past business review into the sale of the ALICO Enhanced Variable Rate Fund announced in November 2011 and a Financial Services Authority fine of £8.75 million relating to Anti Money Laundering control processes.
Of which: Ongoing businesses 602 773 1,348 Run-off businesses (8) (18) (37)
Performance ratios (ongoing businesses) Return on equity (1) 9.2% 11.5% 15.4% Net interest margin 1.64% 1.73% 1.92% Cost:income ratio 66% 62% 55%
Excluding GMS expenses of £244 million, expenses decreased by £4 million, reflecting business improvement initiatives and investment in technology and support infrastructure.
Operating profit before impairment losses 324 400 478 Impairment losses (1,364) (1,384) (1,161)
Performance ratios Return on equity (1) (21.8%) (22.8%) (16.8%) Net interest margin 1.88% 1.87% 2.03% Cost:income ratio 62% 58% 55%
Capital and balance sheet Loans and advances to customers (gross) - mortgages 19.2 20.0 21.2 - corporate - property 4.3 4.8 5.4 - other corporate 7.8 7.7 9.0 - other lending 1.3 1.6 1.3 32.6 34.1 36.9 Loan impairment provisions (3.9) (2.7) (1.6) Net loans and advances to customers 28.7 31.4 35.3
Total third party assets 117.3 117.3 112.4 72.5 75.8 72.4 Investment securities 19.5 23.5 21.4 12.0 15.2 13.8 Risk elements in lending - retail 1.3 1.0 0.7 0.8 0.6 0.4 - commercial 0.6 0.6 0.7 0.3 0.4 0.5 Total risk elements in lending 1.9 1.6 1.4 1.1 1.0 0.9 Provision coverage (1) 48% 72% 85% 48% 72% 85%
Notes: (1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions), for the ongoing businesses. (2) Compensation ratio is based on staff costs as a percentage of total income.
Gross written premium Personal lines motor excluding broker - own brand 1,494 1,584 1,647 - partnerships 136 137 257 Personal lines home excluding broker - own brand 455 474 478 - partnerships 534 549 556 Personal lines rescue and other excluding broker - own brand 177 174 178 - partnerships 176 174 159 Commercial 436 435 397 International 557 570 425 Other (1) 1 1 201 Total gross written premium 3,966 4,098 4,298
A combined operating ratio (COR) of 100% represented an improvement of 100 basis points compared with 2011 driven predominantly by an improved loss ratio. The full year 2012 result included Home weather event claims of approximately £105 million versus £20 million in 2011, which was more than offset by £390 million of releases from reserves held against prior year claims across the portfolio. Of these releases, £68 million related to the run-off business where the impact on the income statement is broadly neutral. For Direct Line Group’s ongoing operations, the current year attritional loss ratio improved by 1.6 percentage points which reflects actions taken to improve risk selection and the implementation of the claims transformation programme. In 2012 all categories within Direct Line Group made an operating profit.
During 2012, a number of partnership agreements, including Nationwide Building Society and Sainsbury’s Bank, were either renewed or extended. In addition, Direct Line Group signed an arm’s length, five year distribution agreement with RBS Group for the continued provision, post divestment, of general insurance products to UK Retail customers.
US Retail & Commercial Auto and consumer 0.6 0.8 2.6 Cards — 0.1 0.1 SBO/home equity 2.0 2.5 3.2 Residential mortgages 0.4 0.6 0.7 Commercial real estate 0.4 1.0 1.5 Commercial and other 0.1 0.4 0.5 Total US Retail & Commercial 3.5 5.4 8.6
Expenses were £351 million lower, driven by reduced headcount and lower operating lease depreciation, principally following the disposal of RBS Aviation Capital.
Debt securities in issue decreased £68.0 billion, 42%, to £94.6 billion reflecting the maturity of the remaining notes issued under the UK Government’s Credit Guarantee Scheme, £21.3 billion, the repurchase of bonds and medium term notes as a result of the liability management exercise completed in September 2012, £4.4 billion, and the continuing reduction of commercial paper and medium term notes in issue in line with the Group’s strategy.
The increase in assets and liabilities of disposal groups reflects the reclassification of the UK branch-based businesses and RBS Aviation Capital pending their disposal, partly offset by the completion of disposals, primarily RBS Sempra Commodities JV and certain Non-Core project finance assets.
Subordinated liabilities were down £0.7 billion, 3%, to £26.3 billion, primarily reflecting the redemption of £0.2 billion US dollar and £0.4 billion Euro denominated dated loan capital.
Impact on the Group If a peripheral eurozone sovereign defaults on its debt, the Group could experience unexpected impairments, either as a result of its exposure to the sovereign or as a result of its exposure to financial institutions or corporations located in that country.
If one or more peripheral eurozone sovereigns redenominates its currency, resulting in a devaluation, the Group could experience losses to the extent that its exposures to these sovereigns are not funded by liabilities that similarly redenominate.
Strategic risk objectives*: Top and emerging risk scenarios continued Mitigants The Group is in the process of installing a new global client screening program, the objective of which is to prevent the inadvertent provision of products and services to sanctioned individuals or groups.
Risk appetite and risk governance Risk appetite* Risk appetite is both a key business tool and an integral part of RBS’s enterprise-wide approach to risk management. It is aligned with the Group’s strategic objectives, helping to strike an optimal balance between building a sustainable risk profile and creating long-term value for the Group’s customers, investors and wider stakeholders. The risk appetite framework is designed to ensure that each business can withstand significant deteriorations in economic and market conditions.
Communication and training programmes ensure staff are aware of their own responsibilities. Policy standard owners and sponsors review their policies on a regular basis, documenting identified shortfalls and addressing them within an agreed time frame.
During 2012, the scope of the GPF was refined further. Key developments included: Following external benchmarking exercises, additional policy standards were introduced setting out new mandatory controls required to mitigate key risks to the Group.
These committees are supported at a divisional level by a risk governance structure embedded in the business. These committees play a key role in ensuring that the Group’s risk appetite is supported by effective risk management frameworks, limits and policies, together with clear accountabilities for approval, monitoring, oversight, reporting and escalation.
The Executive Committee considers recommendations on risk management matters referred by the Executive Risk Forum and/or Group Risk Committee, including recommendations on risk appetite, risk policies and risk management strategies. It operates under delegated authority from the Group Board.
Risk-type specific stress testing is also conducted. For example, within the market risk management framework, a comprehensive programme of stress tests covers a variety of historical and hypothetical scenarios, including reverse stress tests.
Potential to disrupt the business model and stop normal functions of the Group.
The Group’s performance in 2012 represented a new benchmark in the management of liquidity risk as the Group began operating under normalised market practices for the management of liquidity and funding risk despite a backdrop of continued market uncertainty and certain Group-specific factors such as a downgrade of the Group’s external credit rating.
The Group market risk limit framework expresses the Group’s quantitative tolerance for market risk. The Group limit metrics capture, in broad terms, the full range of market risk exposures, ensuring the risk is appropriately defined and communicated.
Influenced by other risks the Group faces that may contribute to adverse changes in revenues and/or costs, were these risks to crystallise.
The divisions use return on capital metrics when making pricing decisions on products and transactions to ensure customer activity is appropriately aligned with Group and divisional targets and allocations.
Tier 2 capital At 1 January 2012 8,546 Dated subordinated debt issued 4,167 Dated subordinated debt redeemed/matured (3,582) Foreign exchange movements (643) Decrease in capital deductions including APS first loss 4,649 Other movements (985)
Less: 50% of internal rating based impairment allowances 11,432 11,865 10,169 Less: tax on 50% of expected loss over impairment provisions 618 915 758 50% securitisation positions (1,107) (2,019) (2,321) 50% of APS first loss — (2,763) (4,225)
Stability Board (FSB) on 1 November 2012. The FSB list is updated annually. The actual requirement will be phased in from 2016, initially for those banks identified (in the list) as G-SIBs in November 2014.
Capital management: Looking forward continued The changes in the definition of regulatory capital under CRD IV and the capital ratios will be subject to transitional rules: The increase in the minimum capital ratios and the new buffer requirements will be phased in over the five years from implementation of the CRD IV; The application of the regulatory deductions and adjustments at the level of common equity, including the new deduction for deferred tax assets, will also be phased in over the five years from implementation; the current adjustment for unrealised gains and losses on available-for-sale securities will be phased out; and
The Group also accesses wholesale markets by way of public and private debt issuances on an unsecured and secured basis. These debt issuance programmes are spread across multiple currencies and maturities, to appeal to a broad range of investor types and preferences around the world. This market-based funding supplements the Group’s structural liquidity needs and, in some cases, achieves certain capital objectives.
Cash and balances at central banks 79,308 — — — — — — 79,308 — 79,308 Bank reverse repos 1,302 87 — — — — — 1,389 33,394 34,783 Customer reverse repos 22 — — — — — — 22 70,025 70,047 Loans to banks (1) 14,519 1,879 1,005 206 269 35 102 18,015 13,265 31,280 Loans to customers (1) 40,883 18,324 19,269 27,377 58,503 52,930 189,824 407,110 24,841 431,951 Debt securities 2,206 1,869 1,279 1,676 11,847 17,929 49,478 86,284 78,340 164,624 Equity shares — — — — — — 1,908 1,908 13,329 15,237 Settlement balances 5,741 — — — — — — 5,741 — 5,741 Derivatives — 571 626 1,252 3,803 1,879 508 8,639 433,279 441,918 Other assets 72 28 32 106 31 38 617 924 — 924 Total financial assets 144,053 22,758 22,211 30,617 74,453 72,811 242,437 609,340 666,473 1,275,813
Euro 19 26 33 Sterling 17 57 79 US dollar 15 61 121 Other 4 5 10
Key points The Group’s interest rate exposure remains asset sensitive, in that rising rates have a positive impact on net interest margins. The scale of this benefit has increased since 2011.
US dollar 17,313 1 17,312 (2,476) 14,836 (3,897) 10,939 Euro 8,903 2 8,901 (636) 8,265 (2,179) 6,086 Other non-sterling 4,754 260 4,494 (3,597) 897 — 897 30,970 263 30,707 (6,709) 23,998 (6,076) 17,922
Credit risk management framework 160 Risk appetite and concentration risk management 160 Product/asset class 160 Sector concentration 161 Single-name concentration 161 Country 161
This expansion is in line with Group strategy and has no detrimental impact on credit quality (for more commentary refer to Key credit portfolios: Residential mortgages on page 186). The increase was partially offset by reduced unsecured exposures.
Real estate - The Group takes collateral in the form of real estate, which includes residential and commercial properties. The market value of the collateral will typically exceed the loan amount at origination date. The market value is defined as the estimated amount for which the asset could be sold in an arms length transaction by a willing seller to a willing buyer.
The Group uses industry-standard loan and security documentation wherever possible. Non-standard documentation is typically prepared by external lawyers on a case-by-case basis. The Group’s business and credit teams are supported by in-house specialist documentation teams.
Key points Renegotiations completed during 2012, subject to thresholds as explained above, were £8.4 billion (2011 - £9.4 billion). The volume of renegotiations continues at a high level as difficult economic conditions persist in the UK and Ireland, particularly in real estate markets and the Group continues its active problem debt management. Renegotiations are likely to remain significant: at 31 December 2012 loans totalling £13.7 billion (2011 - £11.7 billion) were in the process of being renegotiated but had not yet reached legal completion (these loans are not included in the tables above). Of these 69% were non-performing loans, with an associated provision coverage of 32%, and 31% were performing loans. The principal types of arrangements being offered include variation in margin, payment concessions and loan rescheduling and forgiveness of all or part of the outstanding debt
(£14.5 billion), 6% had been returned to performing portfolios managed by the business by 31 December 2012.
Provisioning for retail customers Provisions are assessed in accordance with the Group’s provisioning policies.
Emergence periods are estimated at a portfolio level and reflect the portfolio product characteristics such as the repayment terms and the duration of the loss mitigation and recovery processes. They are based on internal systems and processes within the particular portfolio and are reviewed regularly.
AQ1-AQ2 AQ3-AQ4 AQ5-AQ6 AQ7-AQ8 AQ9 AQ10 Total Portfolio by asset quality (AQ) band £m £m £m £m £m £m £m 2012
Notes: (1) In 2012, the Group reclassified loans with limited or non-physical security (defined as LTV>1,000%) as minimal security, for which a majority are commercial real estate development loans in Ulster
The mortgage impairment charge was £92 million for 2012 compared with £182 million in 2011 primarily due to lower loss rate adjustments on the non-performing back book, and a stable underlying rate of defaults.
Core mortgage REIL accounted for £1.0 billion of the overall increase, the trend reflecting continued deterioration of macroeconomic factors. However, the number of properties repossessed in 2012 was 127 (81 on a voluntary basis) compared with 161 (123 on a voluntary basis) in 2011.
The majority of the Non-Core commercial real estate development portfolio is non-performing with provision coverage of 65%.
Settlement balances and other financial assets Derivatives Commitments Contingent liabilities Total 2011 £m £m £m £m £m £m £m £m
Loans and advances Cash and balances at central banks Banks (1) Customers
Asset-backed securities Introduction The Group structures, originates, distributes and trades debt in the form of loan, bond and derivative instruments in all major currencies and debt capital markets in North America, Western Europe, Asia and major emerging markets. The carrying value of the Group's debt securities is detailed below.
By counterparty Central government (APS) — — — — 131.8 — (0.2) — 195.8 — 0.6 — Monoline insurers 4.6 — 0.4 — 8.6 — 0.6 — 14.9 — 1.5 — CDPCs (2) 21.0 — 0.2 — 24.5 — 0.9 — 25.0 — 0.8 — Banks 127.2 128.6 2.3 2.8 204.1 202.1 8.5 10.2 370.7 370.6 5.0 5.7 Other financial institutions 135.8 134.9 1.4 1.1 234.8 231.6 10.5 9.5 176.6 195.0 4.4 4.3 Corporates 0.7 — 0.2 — 9.6 7.1 (0.2) 0.3 6.5 1.9 (0.7) 0.1
Commercial real estate lending metrics were as follows: Lending (gross) £63.0bn £74.8bn £26.4bn £34.3bn Of which REIL £22.1bn £22.9bn £17.1bn £18.8bn Provisions £10.1bn £9.5bn £8.3bn £8.2bn REIL as a % of gross loans to customers 35.1% 30.6% 64.8% 54.8% Provisions as a % of REIL 46% 41% 49% 44%
Analyses of provisions are set out on pages 236 to 238.
Central and local government - US 59 1 — — 59 1 - other 1,625 2 145 12 1,770 14 Banks 398 2 3,466 507 3,864 509 Other financial institutions 248 19 7,686 1,300 7,934 1,319 Corporate 346 4 4 — 350 4 Total 2,676 28 11,301 1,819 13,977 1,847
Central and local government - other 2,878 65 778 106 3,656 171 Banks 3,924 49 5,676 789 9,600 838 Other financial institutions 472 41 6,504 2,345 6,976 2,386 Corporate 204 11 78 2 282 13 Total 7,478 166 13,036 3,242 20,514 3,408
Risk models* Risk models are developed both within divisional units and by Group functions. Risk models are also subject to independent review and signoff to the same standard as pricing models. Meetings are held with the FSA every quarter to discuss the traded market risk, including changes in models, management, back-testing results, risks not included in the VaR framework and other model performance statistics.
VaR - is a technique that produces estimates of the potential change in the market value of a portfolio over a specified time horizon at a given confidence level. For internal risk management purposes, the Group’s VaR assumes a time horizon of one trading day and a confidence level of 99%. The Group's VaR model is based on a historical simulation model, utilising data from the previous two years.
In 2012, the IRC model was enhanced further; i) to better capture the risk characteristics of sovereign exposure migrations and defaults; and ii) to align the recovery rates for sovereign exposures to the banking book internal ratings based approach.
on appropriately chosen test portfolios. Ensure that tests capture the effect of using external data proxies where these are used.
N um be r o f t ra di ng d ay s
Market risk: VaR non-trading portfolios continued Structured credit portfolio The structured credit portfolio is within Non-Core. The risk in this portfolio is not disclosed using VaR, as the Group believes this is not an appropriate tool for the banking book portfolio, which comprises illiquid debt securities. These assets are reported on a drawn notional and fair value basis, and managed on a third party asset and risk-weighted assets basis. The table below shows the open market risk in the structured credit portfolio.
The APR decreased significantly due to the disposal of assets and unwinding of trades.
Product categories Cash - ABS 59.2 — — (0.1) (0.9) — — 58.2 Cash - regular 39.5 146.9 9.8 59.9 8.6 16.9 12.7 294.3 Derivatives - credit (0.3) (14.0) 4.0 30.4 28.4 5.6 (2.7) 51.4 Derivatives - interest rate (1.0) — 1.5 0.1 (2.1) (0.3) — (1.8)
Outlook Overall, the outlook for 2013 remains challenging with risks likely to remain elevated but divergent. Much will depend on the success of EU efforts to contain contagion from the sovereign crisis (where downside risks are high) and on whether growth headwinds in larger advanced economies, particularly the US and Japan, persist. Emerging market balance sheet risks remain lower, despite structural and political constraints, but it is expected that these economies will continue to be affected by events elsewhere through financial markets and trade channels.
Eurozone periphery - Comprises Ireland, Spain, Italy, Portugal, Greece and Cyprus.
Greek sovereign CDS positions were fully closed out in April 2012, as the use of the collective action clause in the Greek debt swap resulted in a credit event occurring, which triggered Greek sovereign CDS contracts.
Government — — — 37 (10) 786 403 420 18 — 438 14 452 56 — Central bank 6 — — — — — — — — — 6 — 6 — — Other banks 1 — — 3,169 (634) 100 76 3,193 1,254 — 4,448 42 4,490 5,116 610 Other FI 59 — — 1,661 (540) 96 18 1,739 26 — 1,824 139 1,963 50 — Corporate 4,260 601 246 4 — 36 18 22 456 — 4,738 1,373 6,111 472 — Personal 340 61 27 — — — — — — — 340 56 396 — — 4,666 662 273 4,871 (1,184) 1,018 515 5,374 1,754 — 11,794 1,624 13,418 5,694 610 2011 Government 9 — — 33 (15) 360 751 (358) 35 — (314) 116 (198) 40 — Central bank 3 — — — — — — — — — 3 — 3 — — Other banks 130 — — 4,892 (867) 162 214 4,840 1,620 2 6,592 41 6,633 5,180 122 Other FI 154 — — 1,580 (639) 65 8 1,637 282 — 2,073 169 2,242 1,084 467 Corporate 5,775 1,190 442 9 — 27 — 36 454 — 6,265 2,247 8,512 471 — Personal 362 — — — — — — — — — 362 57 419 — — 6,433 1,190 442 6,514 (1,521) 614 973 6,155 2,391 2 14,981 2,630 17,611 6,775 589 2010 Government 19 — — 88 (7) 1,172 1,248 12 53 — 84 1 85 60 — Central bank 5 — — — — — — — — — 5 — 5 — — Other banks 166 — — 5,264 (834) 147 118 5,293 1,480 2 6,941 41 6,982 5,098 515 Other FI 92 — — 1,724 (474) 34 7 1,751 22 — 1,865 285 2,150 145 — Corporate 6,991 1,871 572 9 38 50 8 51 490 — 7,532 2,672 10,204 567 — Personal 407 1 — — — — — — — — 407 62 469 — — 7,680 1,872 572 7,085 (1,277) 1,403 1,381 7,107 2,045 2 16,834 3,061 19,895 5,870 515
CDS exposures that can result in fluctuations between long and short positions for HFT debt securities.
The Netherlands - Non-Core lending exposure was £2.0 billion at 31
In 2013, through further embedding the enhanced operational risk framework and tools and improving framework linkages, operational risk will be managed on a more forward-looking basis.
Although the operational risk tools encompass all stages of the risk cycle, they can be broadly categorised as follows: Identification and assessment Risk and control assessments Risk and control assessments are used to identify and assess material operational risks and key controls across all business areas. To provide a consistent categorisation of risks and controls across the Group and to support identification of risk concentrations, all risks and controls are mapped to the Group-wide risk taxonomy and the newly developed control catalogue.
Separately, and following consultation, the Basel Committee published a framework to address domestic systemically important banks in November 2012, which followed on from its methodology for identifying global systemically important banks developed in 2011. The framework focuses on the impact that the distress or failure of banks will have on the domestic economy. The correct calibration of linkages between the domestic and international frameworks is now critical.
The Commission is considering the Expert Group’s recommendations and has said that it will formally respond by September 2013. Member state views on the Expert Group's proposals, where expressed, have been mixed. The UK is meanwhile pushing ahead with implementation of its own ring-fencing reforms, as set out by the Independent Commission on Banking. These go further than the Expert Group's proposals. France and Germany have also published draft legislation of their own on ringfencing, which focus mainly on separating out proprietary trading (but allowing market making activities to remain within the deposit-taking bank).
Parliament voted on the proposal in September 2012 but the Council of the EU had not agreed its final position by the end of 2012. The new Irish Presidency of the Council plans to finalise the proposals before the end of its term in June 2013.
Effective conduct risk management is not only a commercial imperative for the Group. Customers, clients and counterparties demand it as a precursor to building trust. It also reflects the changing regulatory environment in the UK, with the establishment of the Financial Services Conduct Business Unit (forerunner to the Financial Conduct Authority), and the increasing focus of overseas regulators on conduct risk.
(For credit risk specific information on ESE risk policies, refer to Credit risk management framework on page 160).
The Group Board has ultimate responsibility for managing the Group’s reputation, though all parts of the Group have responsibility for any reputational impact arising from their operations. The Board’s oversight of reputational issues is supported by executive risk committees (including a new Conduct Risk Committee) and by the Group Sustainability Committee. Emerging reputational issues are pro-actively identified and assessed by a dedicated working group, and escalated through the appropriate governance channels where necessary.
External appointments Non-executive director and chairman of the audit committee of BP plc Board member of Financial Skills
Arthur ‘Art’ Ryan (age 70) Date of appointment: 1 October 2008
Nathan Bostock (age 52) Head of Restructuring & Risk Nathan Bostock joined the RBS Group in June 2009. He is Head of Restructuring and Risk with responsibility for Risk Management, Legal & Regulatory Affairs and the Global Restructuring Group. Before joining RBS, Nathan spent eight years with Abbey National plc in several roles and was latterly the chief financial officer and main board director responsible for Products & Marketing, HR, Insurance and Cards. Before joining Abbey in 2001, Nathan spent ten years with RBS in a number of roles, including Chief Operating Officer of Treasury and Capital Markets and Group Risk Director. A Chartered Accountant, Nathan worked with Coopers & Lybrand, before starting his career in banking. He spent seven years in Chase Manhattan Bank in a variety of areas and functions. He also holds a BSc (Hons) in Mathematics.
Sandy Crombie 9/9 Alison Davis 9/9 Tony Di Iorio 9/9 Philip Hampton 9/9 Stephen Hester 9/9 Penny Hughes 9/9 Joe MacHale 9/9 Brendan Nelson 9/9 Baroness Noakes 9/9 Art Ryan (1) 6/9 Philip Scott 9/9 Bruce Van Saun 9/9
Principal activities of the Board during 2012 In advance of each Board meeting, the directors were supplied with comprehensive papers in hard copy and/or electronic form.
Board committees In order to provide effective oversight and leadership, the Board has established a number of Board committees with particular responsibilities. The Committee chairmanship and membership are reviewed on a regular basis. The names and biographies of all Board Committee members are set out on pages 298 to 301.
The role and responsibilities of the Group Audit Committee The Group Audit Committee’s primary responsibilities are shown below and are set out in its terms of reference which are reviewed annually by the Group Audit Committee and approved by the Board. These are available on the Group’s website www.rbs.com
• Monitor and review reports prepared by the External Auditors, including their annual management letter; • Approve the terms of engagement of the External Auditors; • Resolve any disagreements between management and the External Auditors regarding financial reporting; and
• To consider the Group’s risk appetite framework and risk tolerance for current and future strategy; • To review the financial, credit, country, conduct, concentration, regulatory, operational and market risk appetite and related authorities, limits and mandates; and
A report on the activity of the Board Risk Committee in fulfilling its responsibilities was provided to the Board following each Committee meeting. The key considerations of the Committee during 2012 are explained more fully below.
The risk governance model continues to evolve and the Board Risk Committee has and will continue to monitor developments as appropriate.
A robust process is used to assess risk performance. A range of measures are considered, including funding, liquidity, credit, regulatory, operational and market risk. The steps we take to ensure appropriate and thorough risk adjustment continue to be refined and are fully disclosed and discussed with the FSA.
A Group Accountability Review Panel ensures consistency of decision making across the Group.
Performance measures and relative weightings are: Core Bank Economic Profit - 25%
Lead delivery of overall performance, including measures relating to ROE, cost management, Core Tier 1 capital ratio, funding and risk profile, lending, and EU mandated disposals.
Earnings volatility Customer franchise Cost:income ratio in Core bank Lending targets Sustainability performance
The Committee and the Board have considered carefully their responsibilities and have applied judgement to achieve a balance whereby our remuneration policy supports business goals without causing unacceptably high people risks.
Bruce Van Saun In the event of his personal underperformance, the company is entitled, after giving reasonable opportunity to remedy any failure, to terminate Bruce Van Saun’s contract by giving written notice with immediate effect and without making any payment in lieu of notice and Bruce Van Saun will forfeit any unvested stock awards. Any payment in lieu of notice that may be made to Bruce Van Saun would be based on salary only (i.e. no annual incentive or benefits). The company has agreed that, provided certain conditions are met, on leaving employment, Bruce Van Saun will not forfeit awards under the rules of the Group’s share plans.
The level of remuneration for non-executive directors reflects their responsibility and time commitment and the level of fees paid to nonexecutive directors of comparable major UK companies. Non-executive directors do not participate in any incentive or performance plan. Nonexecutive directors’ fees are reviewed regularly.
Implementation Report for 2012 The table below has been prepared in line with the anticipated reporting requirements proposed by the Department for Business, Innovation and Skills. The purpose is to reflect the fixed elements of pay that have been earned during the year and, as far as is possible, to value performance related pay where performance has been assessed.
The following tables and explanatory notes on this page detail the remuneration of each director for the year ended 31 December 2012 and have been audited by the company's auditors, Deloitte LLP.
Advisers to the Group Performance and Remuneration Committee The advisers are appointed independently by the Committee, which reviews its selection of advisers annually. The advisers are instructed by and report directly to the Committee. The Committee Chair oversees the fees for the advisers.
Sustainability is central to the way the Group is managed. The Group Sustainability Committee is responsible for overseeing and challenging how management is addressing sustainability and reputation issues relating to all stakeholder groups and reports to the Board. For more information on the Committee, see page 307.
Directors The names and brief biographical details of the current directors are shown on pages 298 to 301.
All directors of the company are required to stand for re-election annually by shareholders at the Annual General Meeting.
Directors’ interests The interests of the directors in the shares of the company at 31 December 2012 are shown on page 339. None of the directors held an interest in the loan capital of the company or in the shares or loan capital of any of the subsidiary undertakings of the company, during the period from 1 January 2012 to 27 February 2013.
2. Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and entities (including certain special purpose entities) that are controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of the entity; generally conferred by holding a majority of voting rights. On acquisition of a subsidiary, its identifiable assets, liabilities and contingent liabilities are included in the consolidated accounts at their fair value. A subsidiary is included in the consolidated financial statements from the date it is controlled by the Group until the date the Group ceases to control it through a sale or a significant change in circumstances. Changes in the Group’s interest in a subsidiary that do not result in the Group ceasing to control that subsidiary are accounted for as equity transactions.
Payment services - this comprises income received for payment services including cheques cashed, direct debits, Clearing House Automated Payments (the UK electronic settlement system) and BACS payments (the automated clearing house that processes direct debits and direct credits). These are generally charged on a per transaction basis. The income is earned when the payment or transaction occurs. Charges for payment services are usually debited to the customer's account monthly or quarterly in arrears. Income is accrued at period end for services provided but not yet charged.
Loans and advances to customers 16,188 17,827 18,712 Loans and advances to banks 493 680 575 Debt securities 1,849 2,529 3,065 Interest receivable 18,530 21,036 22,352
Staff costs 111 84 51 Premises and equipment (2) 11 6 Other administrative expenses 62 50 25 Continuing operations 171 145 82 Discontinued operations 85 20 — 256 165 82
There were 14,300 people employed in discontinued operations at 31 December 2012 (2011 - 15,100; 2010 - 15,000).
The market value of awards exercised in 2012 was £45 million (2011 - £11 million; 2010 - £6 million).
The Main scheme, which represents 85% of plan assets at 31 December 2012 (2011 and 2010 - 84%), is invested in a diversified portfolio of quoted and private equity, government and corporate fixed-interest and index-linked bonds, and other assets including property and hedge funds.
Quoted equities 7.7 7.7 7.7 7.8 7.7 7.5 Private equity 7.7 7.7 7.7 7.7 7.7 7.7 Index-linked bonds 3.2 3.1 4.2 3.2 3.1 4.0 Government fixed interest bonds 3.2 3.1 — 2.9 2.8 2.9 Corporate and other bonds 4.2 4.7 5.5 4.2 4.7 5.2 Hedge funds 6.0 6.0 6.0 6.0 6.0 5.3 Property 6.7 6.7 6.7 6.7 6.5 6.4 Cash and other assets 2.6 2.6 4.0 2.6 2.9 3.7 Equity exposure of equity futures 7.7 7.7 7.7 7.7 7.7 7.7 Cash exposure of equity futures 2.6 2.6 4.0 2.6 2.6 4.0 Total fund 5.3 5.7 6.7 5.3 5.6 6.3
Liabilities Deposits by banks - repos 36,370 — 7,962 44,332 - other (3) 30,571 — 26,502 57,073 Customer accounts - repos 82,224 — 5,816 88,040 - other (4) 12,077 6,323 414,839 433,239 Debt securities in issue (5) 10,879 23,614 60,099 94,592 Settlement balances — — 5,878 5,878 Short positions 27,591 — 27,591 Derivatives 428,537 5,796 434,333 Accruals, deferred income and other liabilities — — 1,684 12 13,105 14,801 Retirement benefit liabilities 3,884 3,884 Deferred tax 1,141 1,141 Subordinated liabilities — 1,128 25,645 26,773 Liabilities of disposal groups 10,170 10,170 628,249 31,065 5,796 548,425 12 28,300 1,241,847
(Losses)/gains on financial assets/liabilities designated as at fair value through profit or loss (2,612) 1,761 279 (Losses)/gains on disposal or settlement of loans and receivables (76) 59 267
IPV variances are classified as hard, soft or indicative. A variance is hard where the independent information represents tradable or liquid prices and soft where it does not. Variances are classed as indicative where the independent evidence is so subjective or sparse that conclusions cannot be formed with a sufficient degree of confidence. Adjustments are required for all hard variances and for aggressive soft variances, with conservative and indicative variances not requiring automatic adjustment.
Senior Management Valuation Control Committees meet formally on a monthly basis to discuss independent pricing, reserving and valuation issues relating to both Markets and Non-Core exposures. All material methodology changes require review and ratification by these committees. The committees include valuation specialists representing several independent review functions which comprise Market Risk, QuaRC and Finance.
Credit valuation adjustments (CVA) - monoline insurers 192 1,198 2,443 - credit derivative product companies 314 1,034 490 - other counterparties 2,308 2,254 1,714 2,814 4,486 4,647 Bid-offer, liquidity, funding, valuation and other reserves (1) 1,997 2,704 2,797 Valuation reserves 4,811 7,190 7,444
Vanilla risk on exotic products is typically reserved as part of the overall portfolio based calculation e.g. delta and vega risk on exotic products are included within the delta and vega bid-offer calculations. Aggregation of risk arising from different models is in line with the Group's risk management practices; the model review control process considers the appropriateness of model selection in this respect.
Own credit The Group takes into account the effect of its own credit standing when valuing financial liabilities recorded at fair value in accordance with IFRS. Own credit spread adjustments are made to issued debt held at fair value, including issued structured notes, and derivatives. An own credit adjustment is applied to positions where it is believed that counterparties would consider the Group's creditworthiness when pricing trades.
Amounts recorded in the income statement relating to instruments held at year end £m
Fair value hedging Interest rate contracts 3,779 4,488 3,550 4,288 2,496 3,767
Hedged forecast cash flows expected to occur Forecast receivable cash flows 285 259 232 177 138 190 — — 1,281 Forecast payable cash flows (56) (45) (37) (35) (35) (172) (259) (39) (678)
Held-for-trading 13,261 68 13,329 12,366 67 12,433 19,110 76 19,186 Designated as at fair value through profit or loss 251 282 533 373 401 774 282 731 1,013 Available-for-sale 221 1,149 1,370 609 1,367 1,976 650 1,349 1,999 13,733 1,499 15,232 13,348 1,835 15,183 20,042 2,156 22,198
Impairment review The Group's goodwill acquired in business combinations is reviewed annually at 30 September for impairment by comparing the recoverable amount of each cash-generating unit (CGU) to which goodwill has been allocated with its carrying value.
20 Discontinued operations and assets and liabilities of disposal groups In October 2012, the Group completed the successful initial public offering of Direct Line Insurance Group plc (‘DLG’), selling 34.7% of its interest. The Group’s plan is to cede control by 31 December 2013 and accordingly DLG is treated as a discontinued operation and its assets and liabilities are included in disposal groups. Included within DLG discontinued operations are the managed basis divisional results of DLG, certain DLG related activities in Central items and Non-Core; and related one-off and other items including write-down of goodwill, integration and restructuring costs and strategic disposals.
Other comprehensive income Available-for-sale financial assets 20 129 87 Currency translation (11) (4) (3) Actuarial losses on defined benefit plans (3) (1) 11 Other comprehensive income before tax 6 124 95 Tax credit/(charge) 2 (35) (27)
Note: (1) Other liabilities include £24 million (2011 - £15 million; 2010 - £18 million) in respect of share-based compensation.
(4) On 6 February 2013, the Group reached agreement with the FSA, the US Department of Justice and the Commodity Futures Trading Commission in relation to the setting of LIBOR and other trading rates, including financial penalties of £381 million. The Group continues to cooperate with other governmental and regulatory authorities and the probable outcome of these investigations is that the Group will incur additional financial penalties. However, at this early stage, the Group is unable reliably to estimate their quantum.
Notes on the consolidated accounts continued 24 Subordinated liabilities continued Dated loan capital
The Royal Bank of Scotland plc £31 million 7.375% undated subordinated notes Upper Tier 2 31 31 31 £51 million 6.25% undated subordinated notes (callable every five years from December 2012) (1) Upper Tier 2 51 53 55 £56 million 6% undated subordinated notes (callable every five years from September 2014) (1) Upper Tier 2 61 62 61 €176 million 5.125% undated subordinated notes (callable quarterly from July 2014) (1) Upper Tier 2 155 161 166 €170 million floating rate undated subordinated notes (callable quarterly from July 2014) (1) Upper Tier 2 138 141 145 £54 million 5.125% undated subordinated notes (callable every five years from March 2016) (1) Upper Tier 2 61 61 58 £35 million 5.5% undated subordinated notes (callable every five years from December 2019) (1) Upper Tier 2 39 37 35 £21 million 6.2% undated subordinated notes (callable every five years from March 2022) (1) Upper Tier 2 46 45 43 £103 million 9.5% undated subordinated bonds (callable every five years from August 2018) (1,4) Upper Tier 2 137 137 130 £16 million (2011 and 2010 - £22 million) 5.625% undated subordinated notes (callable every five years from September 2026) (1) Upper Tier 2 24 23 21 £19 million 5.625% undated subordinated notes (callable every five years from June 2032) (1) Upper Tier 2 13 13 20 £1 million floating rate undated subordinated notes (callable semi-annually from March 2011) (1) Upper Tier 2 1 1 2 CAD474 million 5.37% fixed rate undated subordinated notes (callable quarterly from May 2016) (1) Upper Tier 2 328 347 340
Under the arrangements for accession to APS in December 2009, the company issued B shares in exchange for shares in Aonach Mor Limited. No share premium was recorded in the company financial statements through the operation of the merger relief provisions of the Companies Act 2006. The subsequent redemption of these shares gave rise to distributable profits of £50 million in 2011 and £12,250 million in 2010, which were transferred from merger reserve to retained earnings.
Operating leases - transportation 357 457 1,834 2,097 4,745 - cars and light commercial vehicles 503 109 100 9 721 - other 30 20 39 13 102 Finance lease contracts 20 41 131 263 455 Hire purchase agreements — 3 70 — 73 910 630 2,174 2,382 6,096
Tier 1 deductions 50% of material holdings (295) (340) (310) Tax on excess of expected losses over impairment provisions 618 915 758 323 575 448
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 above. These commitments and contingent obligations are subject to the Group's normal credit approval processes.
The redress exercise and the past business review is being scrutinised by an independent reviewer, who will review and agree any redress, and will be overseen by the FSA. The Group made a total provision of £700 million in 2012 in respect of this matter, including £125 million for administration expenses. As the actual amount that the Group will be required to pay, will depend on the facts and circumstances of each case, there is no certainty as to the eventual costs of redress.
In September and October 2010, the SEC requested voluntary production of information concerning residential mortgage-backed securities (RMBS) underwritten by subsidiaries of RBS during the period from September 2006 to July 2007 inclusive. In November 2010, the SEC commenced a formal investigation. The investigation appears to be focused on certain specific RMBS securitisations underwritten in 2007 and is continuing.
In the UK, Direct Line Group utilises a multi-brand, multi-product and multi-distribution channel business model that covers most major customer segments for personal lines general insurance. The Group also has a focused presence in the commercial market. The Group occupies leading market positions in terms of in-force policies and has the most highly recognised brands in the UK for personal motor and home insurance including Direct Line and Churchill. Other primary Direct Line Group brands include Privilege and Green Flag; NIG, a provider of insurance solutions to UK SMEs and Direct Line For Business (“DL4B”), the Group’s direct commercial brand. The Group is also a major provider of insurance through a number of strategic partnerships. In Italy and Germany the Group operates under the Direct Line brand.
Statutory basis including the results of Direct Line Group discontinued operations 12,679 16,258 28,937 (19,119) (1,875) (8,709) (766) Direct Line Group discontinued operations (1) (376) (3,910) (4,286) 3,824 36 2 (424)
Paid-in equity At 1 January 431 431 565 Securities redeemed — — (132) Transfer to retained earnings — — (2)
11 Share capital Details of the company’s share capital are set out in Note 26 on the consolidated accounts.
Financial summary continued Analysis of loans and advances to customers The following table analyses loans and advances to customers before impairment provisions by remaining maturity, geographical area and type of customer.
Accruing loans past due 90 days or more comprise loans past due 90 days where no impairment loss is expected and those awaiting individual assessment. A latent loss provision is established for the latter.
Financial summary continued Analysis of deposits - product analysis The following table analyses the Group's deposits by type and geographical area. 2012 £m
Supervision United Kingdom The UK Financial Services Authority (FSA) is currently the consolidated supervisor of the Group. As at 31 December 2012, 22 companies in the Group, spanning a range of financial services sectors (banking, insurance and investment business), were authorised to conduct financial activities regulated by the FSA.
Material contracts continued The company gave certain representations and warranties to HM Treasury on the date of the Acquisition and Contingent Capital Agreement, on the date the circular was posted to shareholders, on the first date on which all of the conditions precedent were satisfied, or waived, and on the date of the Acquisitions. The company has agreed to give such representations and warranties again on each date (if any) a Contingent Subscription is triggered and on each date (if any) on which B shares are issued pursuant to a Contingent Subscription.
Risk factors continued The occurrence of any of these events may have a material adverse effect on the Group’s financial condition, results of operations and prospects.
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 its current intentions change, HM Treasury’s position as a majority shareholder (and UKFI’s position as manager of this shareholding) means that HM Treasury or UKFI may be able to exercise a significant degree of influence over, among other things, the election of directors. The manner in which HM Treasury or UKFI exercises HM Treasury’s rights as majority shareholder could give rise to conflict between the interests of HM Treasury and the interests of other shareholders. The Board has a duty to promote the success of the Group for the benefit of its members as a whole.
Risk factors continued Concerns about, or a default by, one financial institution could lead to significant liquidity problems and losses or defaults by other financial institutions, as the commercial and financial soundness of many financial institutions may be closely related as a result of credit, trading, clearing and other relationships. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity problems and losses for, or defaults by, the Group. This systemic risk may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which the Group interacts on a daily basis, all of which could have a material adverse effect on the Group’s access to liquidity or could result in losses which could have a material adverse effect on the Group’s financial condition, results of operations and prospects.
In the UK and in other jurisdictions, the Group is responsible for contributing to compensation schemes in respect of banks and other authorised financial services firms that are unable to meet their obligations to customers In the UK, the Financial Services Compensation Scheme (FSCS) was established under the FSMA and is the UK’s statutory fund of last resort for customers of authorised financial services firms. The FSCS can pay compensation to customers if a firm is unable or likely to be unable, to pay claims against it and may be required to make payments either in connection with the exercise of a stabilisation power or in exercise of the bank insolvency procedures under the Banking Act. The FSCS is funded by levies on firms authorised by the FSA, including the Group. In the event that the FSCS raises funds from the authorised firms, raises those funds more frequently or significantly increases the levies to be paid by such firms, the associated costs to the Group may have an adverse impact on its results of operations and financial condition. At 31 December 2012, the Group had accrued £119 million for its share of estimated FSCS levies for the 2012/2013 and 2013/2014 FSCS years.
To the extent the Group has estimated the indicative impact that Basel III reforms may have on its risk-weighted assets and capital ratios, such estimates are preliminary and subject to uncertainties and may change. In particular, the estimates assume mitigating actions will be taken by the Group (such as deleveraging of legacy positions and securitisations, including Non-Core, as well as other actions being taken to de-risk market and counterparty exposures), which may not occur as anticipated, in a timely manner, or at all.
Dividends Payment dates Cumulative preference shares 31 May and 31 December 2013 28 March, 28 June, 30 September and 31 December 2013
Distributions by the company (other than certain pro-rata distributions of ordinary shares or rights to receive such shares) 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 generally allowed to corporate US holders.
EU Directive on taxation of savings income Under the European Union Council Directive 2003/48/EC on the taxation of savings income, member states of the European Union are required to provide to the tax authorities of other member states details of payments of interest and other similar income paid by a person to an individual or certain other persons resident in another member state, except that Luxembourg and Austria may instead impose a withholding system for a transitional period unless during such period they elect otherwise.
Credit derivative product company (CDPC) - a special purpose entity that sells credit protection under credit default swaps or certain approved forms of insurance policies. Sometimes they can also buy credit protection. CDPCs are similar to monoline insurers. However, unlike monoline insurers, they are not regulated as insurers.
Securitisation - a process by which assets or cash flows are transformed into transferable securities. The underlying assets or cash flows are transferred by the originator or an intermediary, typically an investment bank, to a special purpose entity which issues securities to investors. Asset securitisations involve issuing debt securities (asset-backed securities) that are backed by the cash flows of income-generating assets (ranging from credit card receivables to residential mortgage loans). Liability securitisations typically involve issuing bonds that assume the risk of a potential insurance liability (ranging from a catastrophic natural event to an unexpected claims level on a certain product type).
Employees Business review 66 Costs 375 Headcount 376 Report of the directors 346 Variable compensation 379
RBS Secretariat The Royal Bank of Scotland Group plc PO Box 1000 Gogarburn Edinburgh EH12 1HQ Telephone: +44 (0)131 556 8555 Facsimile: +44 (0)131 626 3081