AGM Statement

Royal Bank of Scotland Group PLC
23 April 2008

The Royal Bank of Scotland Group plc - AGM Statement



23 April 2008



The Meeting dealt with proposed Resolutions as outlined in the Notice of the
Meeting issued to Shareholders dated 14 March 2008 and a summary of the business
and financial performance of the Group in 2007 was provided.



The following is an extract from the speech made by Sir Tom McKillop, Chairman,
at the meeting.



The last few months have been a difficult period for banks, because of the
dislocation to financial markets, which has been widely discussed in the media.
I am sure that you will all have seen the announcement we made yesterday of our
intentions to take actions to raise our capital ratios through a rights issue
and by making some disposals.  The board is convinced that these actions are in
the best interests of RBS and of its shareholders.



You will receive a lot more information concerning that when the prospectus is
issued and you will have the opportunity to debate our capital plans fully at a
General Meeting that will take place next month.



Today's meeting is primarily concerned with the Group's 2007 financial year, and
with the resolutions before you on the agenda.



So I would like first of all to take you through the Group's financial
performance in 2007; discuss the acquisition of ABN AMRO; and comment on current
trading conditions.



As you will have seen from our Report and Accounts, RBS delivered a strong set
of results for 2007.



We increased Group operating profit by 9 per cent to £10.3 billion.  Earnings
per share grew by 18 per cent to 78.7 pence per share, benefiting from a
favourable tax rate in 2007.



In the light of these results, the Board has recommended a final dividend of
23.1 pence, making a total of 33.2 pence for the year.  That represents an
increase of 10 per cent from 2006.



These are the Group's statutory results and the figures include the entirety of
ABN AMRO, and its funding costs, since the completion of the acquisition - that
is to say, for the last 76 days of the year.



I will not go through all the financial results as they are set out in our
Report and Accounts, but to remind you of our performance in 2007, I will focus
initially on the Group excluding ABN AMRO, before coming onto the acquisition of
ABN AMRO



For RBS, excluding ABN AMRO, income grew by 3% in 2007 to almost £29 billion.



This was a lower rate of income growth than we have achieved in recent years,
reflecting the significant deterioration in credit markets that we have
experienced since the second half of 2007.  As a result of this deterioration we
not only experienced a marked slowdown in business volumes in some of our
specialist markets, such as asset-backed securities and leveraged finance, but
also took write-downs on the value of some financial assets, particularly those
which are exposed directly or indirectly to the US mortgage market.



On the other hand, we also made good profits on the disposal of a number of
assets during the course of the year, including Southern Water.



We reduced our operating costs by 1 per cent, with the result that our cost:
income ratio improved from 42.1 per cent in 2006 to 40.7 per cent in 2007.

At the same time, while growing our average lending to customers by 10 per cent,
we achieved a 1 per cent reduction in impairment losses, which reflects a very
strong performance in controlling our credit risks.



Once again, these results showed the strength, the flexibility and the diversity
of the business model we operate.   There were good performances within all of
our divisions, and some particularly strong collective performances in UK
Corporate Banking, in Retail, in Wealth Management and in Ulster Bank.



Global Banking and Markets experienced more difficult conditions in its credit
markets business and its results were affected by some significant write-downs
we took on a number of financial assets. On the other hand GBM achieved strong
growth in foreign exchange and money markets.   Outside the UK, it continued to
produce strong growth in continental Europe and Asia, and overall, it delivered
a profit for 2007 only slightly lower than in 2006.



Citizens experienced challenging market conditions, and its results were
affected by the weaker dollar.



Although RBS Insurance's results were affected by last summer's severe flooding
in several regions of the United Kingdom, it actually achieved a very good
underlying performance.



Just to put our 2007 results in context our performance last year placed us 4th
in the world among banks in terms of Group operating profit.



To summarise:



In 2007 we achieved strong organic growth, despite the effect of more difficult
credit market conditions on our Global Banking & Markets business, with reduced
operating costs, reduced credit costs and increased returns.



Turning now to the acquisition of ABN AMRO:



I would like to take a few minutes to take you through the Board's thinking on
this matter.



The Board met many times to consider the acquisition of ABN AMRO and we gave it
a great deal of thought throughout the whole process.



We had entered 2007 with our eyes fixed firmly on organic growth, but when ABN
AMRO indicated that it was looking for a partner it was incumbent on us to
consider the implications for our Group.  An opportunity that fits so closely
with our strategic priorities does not arise often and it was, and remains, the
Board's view that the acquisition will deliver good, long-term value enhancement
to you, our shareholders.



And I am grateful for the strong support that shareholders gave to this view at
our Extraordinary General Meeting in August last year.



ABN AMRO brought us some very good businesses, and it has created for us some
outstanding opportunities.



In the first place, we now have an enhanced global presence.





ABM AMRO had a very broad footprint and presence in a number of countries
particularly in the Middle East and Asia where we had been keen to expand.



ABN AMRO also had some very strong customer franchises and these were highly
complementary to our own corporate banking business.



RBS was already one of the world's leading corporate banks but as result of the
acquisition we can now lay claim to real pre-eminence in this field. As you will
see from this slide our Global Banking and Markets customer franchise now ranks
1st in the UK and continental Europe and among the top 5 banks in both the
United States and Asia. These are very strong positions that we could not
previously have laid claim to.



We also have improved product capabilities, for example through the addition of
ABN AMRO's world-class business in global payments and trade finance.  We now
call the combined business Global Transaction Services, or simply GTS.



And we have also added to our strategic options in some of the world's
fastest-growing economies, notably in the emerging markets.

The Board remains convinced that in the long term ABN AMRO will prove to add
value for shareholders.



Over the last six months we have been able to confirm our positive view of the
ABN AMRO businesses we have secured. Our teams have also had the opportunity to
confirm their view of the financial benefits we can derive from combining our
businesses.



Indeed, we now expect these benefits to be even greater than those we originally
anticipated.  By 2010, when we have completed the integration process, we expect
to achieve synergies totalling almost 2.3 billion euros a year.



As a result, the financial returns are now expected to be even more attractive
than we had thought when we were first considering this transaction.

Another topic on which many shareholders have written to me is the performance
of our share price over the last year, and I would like to make a few points on
this.



The Board shares your disappointment at what has happened to our stock market
valuation over the last year. The financial sector and banks in particular have
been affected by the volatility in global markets. RBS is not alone in
experiencing a decline in our share price - by more than some of our
competitors, but by less than others.



Of course we are not happy about this performance. We cannot control how the
stock market values our business in the short term. All we can do is manage our
business in a way that delivers good, sustainable growth, and our performance in
2007, as I discussed already achieved this.



A point made by some major institutional shareholders is that they would prefer
us to operate with significant higher capital ratios and that if we were to
re-base our capital at higher levels there might be some potential for re-rating
our stock. We have listened to these comments and, although these were not the
only cause of our decision, our actions announced yesterday have responded to
this point.



The Board had been fully engaged throughout 2007 in monitoring the impact of
this deterioration, and we continued to review conditions as 2008 unrolled. As
it happened, the overall business performance in January and February was
satisfactory, and after thorough consideration we announced our 2007 results,
remaining of the belief that our capital plans, which envisaged rebuilding our
capital ratios primarily through the profits our businesses generate for
themselves, remained achievable.



March 2008, however, took on a very different shape with further, severe
deterioration in credit markets and a worsening outlook for the wider economy.
As soon as this became clear to the Board, we decided that the time had come to
take decisive action to reposition our capital base.



To summarise, the Board has decided that, in the changed market and economic
circumstances, our bank needs to operate in the future with significantly higher
capital ratios than we have aimed for in the past.

The key elements of our new capital plans are:



•        A rights issue to raise £12 billion

•        Estimated write-downs on credit market exposures of £4.3 billion after
         tax

•        And possible asset disposals which could generate £4 billion of
         capital.



The Board has been fully engaged in monitoring our capital position as events
have developed, and has taken these decisions based not only on the sharp
deterioration in credit markets during March but also on our judgment of the
steadily worsening economic outlook and the increasingly clear expectation of
investors and of many others that banks should strengthen their capital base.



The Board was convinced that significantly stronger capital ratios were now
required in what had become a very different world for financial institutions
like ours, and we are convinced that the actions we announced yesterday are in
the best interests  of shareholders.



One significant element in our planning was our continuing exposure to a number
of credit market assets including those related to the US mortgage market.  We
took some write-downs on these exposures in 2007 but in considering the
appropriate size for our capital base the Board made an assessment of the likely
amount of write-downs in 2008 that could result from the further deterioration
in credit markets.



We always keep our portfolio of businesses under review but in the context of
our new capital targets we have identified for possible full or partial disposal
a number of assets which are not central to the powerful UK and international
banking franchises that RBS has built. These include RBS Insurance and a number
of other smaller assets. Our capital plan assumes that these disposals could
contribute approximately £4 billion to our capital during 2008.



As you will have seen from yesterday's announcement, we propose to raise £12
billion of capital by a 11 for 18 rights issue.



The new shares will be priced at 200 pence each, which represents a discount of
46% to the closing price of RBS shares on Monday, the night before the
announcement.



This rights issue is fully underwritten by Goldman Sachs, Merrill Lynch and UBS.



The Board believes that the 2007 level of dividend payout ratio, adjusted for
the bonus element of the rights issue, remains sustainable over the medium term,
given the strength and diversity of the Group, though it also believes that it
would be prudent to pay the 2008 interim dividend in shares.



A prospectus will be issued in early May which will contain all the technical
details, and you will have an opportunity to debate this at greater length at a
general meeting next month.



But I would like to address one particular point that has been made to me, which
is why we are proposing to pay out the 2007 dividend on which you will be voting
today when we are also seeking to raise capital.



The recommendation on the dividend was made at our February Board Meeting ahead
of the marked deterioration in credit market conditions that occurred in March.
It would be technically very difficult to reverse it.



More generally, the 2007 dividend will be paid in respect of the Group's 2007
performance, and it will be paid to shareholders who were on our register on the
7th March. Those shareholders may not be the same as those holding the shares
today.



We have decided to accelerate the payment of the dividend and it will be
possible to take up your rights with that cash.



So I would like to confirm that, if you approve the resolution today, the 2007
final dividend will be paid in cash as announced.



I would now like to comment briefly on the Group's operating performance so far
this year.



With the notable exception of further write-downs on our credit market
exposures, the Group's overall performance so far this year has been
satisfactory.



Parts of Global Banking & Markets have been acutely affected by the
deteriorating conditions in credit markets, although other parts of Global
Banking & Markets, such as interest rates and currencies, are doing well.



By contrast, GTS and our Retail and Commercial banking businesses have performed
well, and the strong growth we have been achieving in Asia has continued.



It is important in uncertain times like these that we should be there for our
customers, and I am pleased that we are, for example, very much open for
business in the UK mortgage market, where we have achieved our best ever market
share in the first quarter.



We have achieved good growth in both personal and corporate deposits, and credit
quality remains stable overall, with reduced credit costs in some parts of our
business and slightly higher bad debts in some others.



While conditions in credit markets remain difficult many of our divisions are
seeing good opportunities to do business with our customers at good risk
adjusted rates of return. A number of our competitors have had to reduce their
levels of activity and we are taking advantage of this.



Our priorities at RBS must remain, first of all, to deliver the ABN AMRO
integration and transaction benefits, and to ensure that we must maintain a
disciplined approach to navigating GBM through these difficult waters.



But we must keep up the momentum of our businesses.  Many of them are doing
well, despite the so-called 'credit crisis'.



While there is a more cautious mood in the US and, to a lesser extent in the UK,
we are now, as a result of our acquisition of ABN AMRO, much better positioned
in fast-growing economies, particularly in Asia.  And we now have an enhanced
presence globally and stronger customer franchises and product capabilities.  We
have many opportunities for future growth.



There are a number of elements that are central to our ability to capitalise on
these opportunities for growth, elements that come out of our engagement with
some of our major stakeholders and I'd like to comment on some of these now.



First of all, and crucially important, our customers.   I am happy to report
that we have again maintained our number 1 position for customer service in UK
high street banking.



We take customer service very seriously, and in 2007 we have worked hard to
improve our service.  And this shows up in our customer satisfaction scores.



Our people, too, are central to our success.



Every year we monitor staff engagement by participating in a comprehensive
employee opinion survey, which enables us to benchmark ourselves against our
competitors.  I am very pleased that in the 2007 survey we scored higher than
the Global Financial Services norm in every category.



And we also improved our scores in every category as compared with our 2006
survey.





One reason behind these good scores is our approach towards involvement in our
communities.   In 2007 we invested £58 million in the communities where our
employees live and work, and we supported employee giving programmes that
generated £12 million in charitable donations.



Our people and our customers have told us that they care very much about their,
and our, impact on the environment.



In 2007 we launched a Group-wide environment programme, focussing not only on
our own impact on the environment but also on ways of enabling our employees and
our customers to make a difference through their own choices.



RBS uses 100 per cent green electricity in the UK and Ireland, and we have
invested £55 million to reduce our carbon footprint, through energy efficiency
measures including solar roof tiles and intelligent energy management for our
buildings.



We have also launched tools to enable our employees and our customers to offset
their own carbon footprints and developed new products.



As a result, RBS has been included in the Carbon Disclosure Project's Leadership
Index, and we were ranked among the 100 Most Sustainable Global Corporations at
the 2008 Davos meetings.



So where does that leave us now?



These are difficult times for everyone concerned, and many financial
institutions are being adversely affected by events in the credit markets, and
face challenging times in the coming months. There are lessons to be learned
from what has happened, and we are anxious to learn, so that we are even better
prepared in the future.



But it is often in adversity that competitive advantage is won. We have
outstanding franchises, considerably enhanced following the acquisition of ABN
AMRO whether it be in geographic spread, client base or product range. Our
priorities are clear and we are all focused on delivering the full potential of
the many opportunities available to us.





Forward Looking Statements



This document does not constitute an offer to sell, or a solicitation of an
offer to subscribe for, securities of RBS or any of its  affiliates in any
jurisdiction or an inducement to enter into investment activity. This document
is not a prospectus but an advertisement and investors should not subscribe for
any securities referred to in this document except on the basis of the
information contained in the prospectus to be published in due course.

The securities mentioned herein (the 'Securities') have not been, and will not
be, registered under the United States Securities Act of 1933 (the 'Securities
Act') and may not be offered or sold in the United States absent registration or
an exemption from the registration requirements of the Securities Act. There
will be no public offer of the Securities in the United States.

Certain statements made in this document constitute forward-looking statements
within the meaning of the United States Private Securities Litigation Reform Act
of 1995. Forward looking statements can be identified by the use of words such
as ''may'', ''will'', ''expect'', ''intend'', ''estimate'', ''anticipate'', ''
believe'', ''plan'', ''seek'', ''continue'' or similar expressions and relate
to, among other things, the performance of RBS's various business units in the
near to medium term, the amount by which RBS expects to write down the value of
certain of its assets, RBS's expectations in respect of the rights issue, its
capital ratios and its dividend payout ratio, RBS's business strategy and its
plans and objectives for future operations. Such statements are based on current
expectations and, by their nature, are subject to a number of risks and
uncertainties that could cause actual results and performance to differ
materially from any expected future results or performance, expressed or
implied, by the forward-looking statement. Factors that might cause forward
looking statements to differ materially from actual results, include among other
things, general economic conditions in the European Union, in particular in the
United Kingdom, and in other countries in which RBS has business activities or
investments, including the United States; the inability of RBS to hedge certain
risks economically; the adequacy of RBS's impairment provisions and loss
reserves; RBS's ability to achieve revenue benefits and cost savings from the
integration of certain of ABN AMRO's businesses and assets; and the potential
exposure of RBS to various types of market risks, such as interest rate risk,
foreign exchange rate risk, credit risk and commodity and equity price risk.
These forward-looking statements speak only as of the date of this document. The
information and opinions contained in this document are subject to change
without notice and, subject to compliance with applicable law, RBS assumes no
responsibility or obligation to update publicly or review any of the
forward-looking statements contained herein.


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