Interim Management Statement - Part 4 of 5

RNS Number : 9319D
Royal Bank of Scotland Group PLC
03 May 2013
 



 

Risk and balance sheet management

 

Presentation of information

In the balance sheet, all assets of disposal groups are presented as a single line. In the risk and balance sheet management section and Appendix 3 Risk management supplement, balances and exposures relating to disposal groups are included within risk measures for all periods presented.

 

Capital management

 

Capital ratios

Current rules

The Group's capital, risk-weighted assets (RWAs) and risk asset ratios, calculated in accordance with Prudential Regulation Authority (PRA) definitions, are set out below.

 

31 March 

2013 

31 December 

2012 

Capital

£bn 

£bn 

 

 


Core Tier 1

48.2 

47.3 

Tier 1

57.5 

57.1 

Total

69.0 

66.8 

 

RWAs by risk

 


 

 

 

Credit risk

 

 

  - non-counterparty

320.8 

323.2 

  - counterparty

44.4 

48.0 

Market risk

38.8 

42.6 

Operational risk

41.8 

45.8 

 

 


 

445.8 

459.6 

 

Risk asset ratios

 

 

 

Core Tier 1

10.8 

10.3 

Tier 1

12.9 

12.4 

Total

15.5 

14.5 

 

Capital Requirements Directive (CRD) IV

Fully loaded CRD IV estimates (1)

31 March 

2013 

31 December 

2012 

 

 


Common Equity Tier 1 capital

£39.9bn 

£38.1bn 

RWAs

£487.2bn 

£494.6bn 

Common Equity Tier 1 capital ratio

8.2% 

7.7% 

 

Note:

(1)

Calculated on the same basis as disclosed on page 162 of the Group's 2012 annual results announcement.

 

Key points

·

Core Tier 1 capital ratios, under current rules and fully loaded CRD IV, improved by 50 basis points to 10.8% and 8.2% respectively. This reflected attributable profit, the favourable impact of currency movements in the capital base as well as reduction in RWAs, the latter despite the impact of additional commercial real estate slotting of £2.8 billion. The weakening of sterling however caused non-sterling RWAs to increase.

 

 

·

The RWA decreases were primarily in Markets (£12.8 billion), reflecting continued focus on risk reduction and a fall in operational risk, and Non-Core (£5.8 billion) due to disposals and run-offs.



 

Risk and balance sheet management (continued)

 

Capital management (continued)

 

Capital resources

 

Components of capital (Basel 2.5)

The Group's regulatory capital resources in accordance with PRA definitions were as follows:

 

 

31 March 

2013 

31 December 

2012 

 

£m 

£m 

 

 

 

Shareholders' equity (excluding non-controlling interests)

 

 

 Shareholders' equity per balance sheet

70,633 

68,678 

 Preference shares - equity

(4,313)

(4,313)

 Other equity instruments

(979)

(979)

 

65,341 

63,386 

 

 


Non-controlling interests

 


 Non-controlling interests per balance sheet

532 

1,770 

 Other adjustments to non-controlling interests for regulatory purposes

(1,367)

 

532 

403 

 

 


Regulatory adjustments and deductions

 


 Own credit

541 

691 

 Defined pension benefit adjustment (1)

592 

913 

 Unrealised losses on available-for-sale (AFS) debt securities

92 

410 

 Unrealised gains on AFS equity shares

(82)

(63)

 Cash flow hedging reserve

(1,635)

(1,666)

 Other adjustments for regulatory purposes

(202)

(198)

 Goodwill and other intangible assets

(13,928)

(13,545)

 50% excess of expected losses over impairment provisions (net of tax)

(1,847)

(1,904)

 50% of securitisation positions

(1,159)

(1,107)

 

(17,628)

(16,469)

 

 


Core Tier 1 capital

48,245 

47,320 

 

 

 

Other Tier 1 capital

 

 

 Preference shares - equity

4,313 

4,313 

 Preference shares - debt

1,113 

1,054 

 Innovative/hybrid Tier 1 securities

4,410 

4,125 

 

9,836 

9,492 

 

 


Tier 1 deductions

 


 50% of material holdings (2)

(1,182)

(295)

 Tax on excess of expected losses over impairment provisions

560 

618 

 

(622)

323 

 

 


Total Tier 1 capital

57,459 

57,135 



 

Risk and balance sheet management (continued)

 

Capital management: Capital resources: Components of capital (Basel 2.5) (continued)

 

 

31 March 

2013 

31 December 

2012 

 

£m 

£m 

 

 

 

Qualifying Tier 2 capital

 

 

 Undated subordinated debt

2,197 

2,194 

 Dated subordinated debt - net of amortisation

13,907 

13,420 

 Unrealised gains on AFS equity shares

82 

63 

 Collectively assessed impairment provisions

417 

399 

 

16,603 

16,076 

 

 


Tier 2 deductions

 


 50% of securitisation positions

(1,159)

(1,107)

 50% excess of expected losses over impairment provisions

(2,407)

(2,522)

 50% of material holdings (2)

(1,182)

(295)

 

(4,748)

(3,924)

 

 


Total Tier 2 capital

11,855 

12,152 

 

 


Supervisory deductions

 


 Unconsolidated investments

 


  - Direct Line Group (2)

(2,081)

  - Other investments

(39)

(162)

 Other deductions

(232)

(244)

 

 


 

(271)

(2,487)

 

 


Total regulatory capital

69,043 

66,800 

 

 

Flow statement (Basel 2.5)

The table below analyses the movement in Core Tier 1, Other Tier 1 and Tier 2 capital during the quarter.


Core Tier 1 

Other Tier 1 

Tier 2 

Supervisory 

deductions 

Total 


£m 

£m 

£m 

£m 

£m 


 

 

 

 

 

At 1 January 2013

47,320 

9,815 

12,152 

(2,487)

66,800 

Attributable profit net of movements in fair value of own credit

243 

243 

Ordinary shares issued

131 

131 

Employee share schemes share capital and reserve

(40)

(40)

Foreign exchange reserve

1,164 

1,164 

Foreign exchange movements

268 

974 

1,242 

Increase in non-controlling interests

129 

129 

Decrease/(increase) in capital deductions (2)

(945)

(824)

2,081 

317 

Increase in goodwill and intangibles

(383)

(383)

Defined pension fund (1)

(321)

(321)

Dated subordinated debt maturities

(150)

(150)

Other movements

(3)

76 

(297)

135 

(89)


 

 

 

 

 

At 31 March 2013

48,245 

9,214 

11,855 

(271)

69,043 

 

Notes:

(1)

The movement in defined pension fund was caused by a contribution to the Main Scheme in the quarter.

(2)

From 1 January 2013 investments in insurance subsidiaries are deducted 50% from Tier 1 and 50% from Tier 2.

 



 

Risk and balance sheet management (continued)

 

Liquidity, funding and related risks

Liquidity risk is highly dependent on characteristics such as the maturity profile and composition of the Group's assets and liabilities, the quality and marketable value of its liquidity buffer and broader market factors, such as wholesale market conditions alongside depositor and investor behaviour.

 

Overview

The Group continued to exceed its medium-term targets on short-term wholesale funding (STWF)(1). STWF at £43.0 billion was 5% of the funded balance sheet and was covered 3.7 times by the liquidity portfolio of £157.6 billion.

 

 

STWF increased marginally from the year end reflecting maturity migration of medium-term notes and some small increases in commercial paper and certificates of deposit.

 

 

Total wholesale funding(1) decreased from £150.4 billion to £147.2 billion.

 

 

The Group liquidity portfolio increased by £10.4 billion (from £147.2 billion to £157.6 billion) mainly in cash at central banks (£7.1 billion) and government bonds (£2.3 billion).

 

 

The Group's loan:deposit ratio improved to 99% with the funding surplus increasing by £2.7 billion mainly in the Retail & Commercial divisions.

 

 

Liquidity metrics generally strengthened during the quarter reflecting balance sheet restructuring. The stressed outflow coverage improved and was 1.3 times the worst stress scenario under the PRA regime. The liquidity coverage ratio, based on the Group's interpretation of draft guidance, was maintained above 100% and the net stable funding ratio improved marginally to 119% from 117% at the year end.

 

 

During the quarter the Group successfully completed a public liability management exercise on £2 billion of senior unsecured debt as part of its on-going balance sheet management.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:

(1)

Excludes derivative collateral.



 

Risk and balance sheet management (continued)

 

Liquidity, funding and related risks (continued)

 

Funding sources

Summary

The table below shows the Group's principal funding sources excluding repurchase agreements.

 


31 March 2013

 

31 December 2012


Less than 

1 year 

More than 

1 year 

Total 

 

Less than 

1 year 

More than 

1 year 

Total 


£m 

£m 

£m 


£m 

£m 

£m 


 

 

 





Deposits by banks

 

 

 





 derivative cash collateral

27,903 

27,903 


28,585 

28,585 

 other deposits

17,231 

9,402 

26,633 


18,938 

9,551 

28,489 


 

 

 






45,134 

9,402 

54,536 


47,523 

9,551 

57,074 


 

 

 





Debt securities in issue

 

 

 





 other commercial paper

3,068 

3,068 


2,873 

2,873 

 certificates of deposit

3,119 

315 

3,434 


2,605 

391 

2,996 

 medium-term notes

15,574 

48,464 

64,038 


13,019 

53,584 

66,603 

 covered bonds

1,082 

9,281 

10,363 


1,038 

9,101 

10,139 

 securitisations

809 

11,028 

11,837 


761 

11,220 

11,981 


 

 

 






23,652 

69,088 

92,740 


20,296 

74,296 

94,592 

Subordinated liabilities

2,081 

25,707 

27,788 


2,351 

24,951 

27,302 


 

 

 





Notes issued

25,733 

94,795 

120,528 


22,647 

99,247 

121,894 


 

 

 





Wholesale funding

70,867 

104,197 

175,064 


70,170 

108,798 

178,968 


 

 

 





Customer deposits

 

 

 





 cash collateral

8,290 

8,290 


7,949 

7,949 

 other deposits

406,713 

23,234 

429,947 


400,012 

26,031 

426,043 


 

 

 





Total customer deposits

415,003 

23,234 

438,237 


407,961 

26,031 

433,992 


 

 

 





Total funding

485,870 

127,431 

613,301 


478,131 

134,829 

612,960 

 

The table below shows the Group's wholesale funding by source.

 


Short-term wholesale

funding (1)


Total wholesale

funding


Net inter-bank

funding (2)


Excluding 

 derivative 

collateral 

Including 

 derivative 

 collateral 


Excluding 

 derivative 

collateral 

Including 

 derivative 

 collateral 


Deposits 

Loans (3)

Net 

 inter-bank 

 funding 


£bn 

£bn 


£bn 

£bn 


£bn 

£bn 

£bn 











31 March 2013

43.0 

70.9 


147.2 

175.1 


26.6 

(18.7)

7.9 

31 December 2012

41.6 

70.2 


150.4 

179.0 


28.5 

(18.6)

9.9 

30 September 2012

48.5 

77.2 


158.9 

187.6 


29.4 

(20.2)

9.2 

30 June 2012

62.3 

94.3 


181.1 

213.1 


35.6 

(22.3)

13.3 

31 March 2012

79.7 

109.1 


204.9 

234.3 


36.4 

(19.7)

16.7 

 

Notes:

(1)

Short-term wholesale balances denote those with a residual maturity of less than one year and include longer-term issuances.

(2)

Excludes derivative collateral.

(3)

Primarily short-term balances.



 

Risk and balance sheet management (continued)

 

Liquidity, funding and related risks (continued)

 

Liquidity portfolio

The table below analyses the Group's liquidity portfolio by product and by liquidity value. Liquidity value is lower than carrying value principally as it is stated after the discounts applied by the Bank of England and other central banks to loans, within secondary liquidity portfolio, eligible for discounting.

 


Liquidity value


Period end

 

Average


31 March 

2013 

31 December 

2012 


Q1 

2013 

Q4 

2012 

31 March 2013

£m 

£m 


£m 

£m 







Cash and balances at central banks

77,238 

70,109 


78,292 

74,794 

Central and local government bonds

23,004 

20,691 


19,419 

24,618 

Treasury bills

750 

750 


750 

750 







Primary liquidity

100,992 

91,550 


98,461 

100,162 

Secondary liquidity (1)

56,578 

55,619 


56,245 

50,901 







Total liquidity portfolio

157,570 

147,169 


154,706 

151,063 













Balance sheet carrying value

199,062 

187,942 




 

Note:

(1)

Includes assets eligible for discounting at the Bank of England and other central banks.

 

Basel III liquidity ratios and other metrics

 


31 March 

2013 

31 December 

2012 





Stressed outflow coverage (1)

134 

128 

Liquidity coverage ratio (2)

>100 

>100 

Net stable funding ratio (2)

119 

117 

 

Notes:

(1)

The Group's liquidity risk appetite is measured by reference to the liquidity buffer as a percentage of stressed contractual and behavioural outflows under the worst of three severe stress scenarios as envisaged under the PRA regime. Liquidity risk is expressed as a surplus of liquid assets over three months' stressed outflows under the worst of a market-wide stress, an idiosyncratic stress and a combination of both.

(2)

Pending the finalisation of the definitions, the Group monitors the LCR and the net stable funding ratio in its internal reporting framework based on its interpretation and expectation of the final rules. At present there is a broad range of interpretations on how to calculate these ratios due to the lack of a commonly agreed market standard. There are also inconsistencies between the current regulatory approach of the PRA and that being proposed in the LCR with respect to the treatment of unencumbered assets that could be pledged with central banks via a discount window facility. This makes meaningful comparisons between institutions difficult.



 

Risk and balance sheet management (continued)

 

Credit risk: Loans and related credit metrics

The tables below analyse gross loans and advances (excluding reverse repos) and the related credit metrics by division. For a description of the Group's early problem debt identification and problem debt management refer to pages 172 to 180 of the Group's 2012 Annual Report and Accounts.

 


 



Credit metrics

Quarter ended


Gross loans to

REIL 

Provisions 

REIL as a % 

of gross 

loans to 

customers 

Provisions 

as a % 

of REIL 

Impairment 

charge 

Amounts 

written-off 

Banks 

Customers 

31 March 2013

£m 

£m 

£m 

£m 

£m 

£m 

 


 

 

 

 

 

 

 

 

UK Retail

876 

113,219 

4,428 

2,558 

3.9 

58 

80 

142 

 

UK Corporate

827 

106,847 

5,329 

2,387 

5.0 

45 

185 

228 

 

Wealth

1,512 

17,204 

259 

112 

1.5 

43 

 

International Banking

5,800 

42,608 

642 

384 

1.5 

60 

55 

62 

 

Ulster Bank

651 

33,100 

7,952 

4,226 

24.0 

53 

240 

27 

 

US Retail & Commercial

115 

53,840 

1,263 

284 

2.3 

22 

19 

69 

 


 

 

 

 

 

 

 

 

Retail & Commercial

9,781 

366,818 

19,873 

9,951 

5.4 

50 

584 

529 

 

Markets

20,293 

32,015 

412 

314 

1.3 

76 

15 

 

Other

3,781 

3,049 

100 

 


 

 

 

 

 

 

 

 

Core

33,855 

401,882 

20,286 

10,266 

5.0 

51 

599 

529 

 

Non-Core

394 

52,923 

20,756 

11,240 

39.2 

54 

437 

627 

 


 

 

 

 

 

 

 

 

Group

34,249 

454,805 

41,042 

21,506 

9.0 

52 

1,036 

1,156 

 

 

31 December 2012










 

 

 

 

 

 

 

 

UK Retail

695 

113,599 

4,569 

2,629 

4.0 

58 

93 

127 

UK Corporate

746 

107,025 

5,452 

2,432 

5.1 

45 

232 

125 

Wealth

1,545 

17,074 

248 

109 

1.5 

44 

16 

International Banking

4,827 

42,342 

422 

391 

1.0 

93 

37 

225 

Ulster Bank

632 

32,652 

7,533 

3,910 

23.1 

52 

318 

28 

US Retail & Commercial

435 

51,271 

1,146 

285 

2.2 

25 

19 

93 








 

 

Retail & Commercial

8,880 

363,963 

19,370 

9,756 

5.3 

50 

715 

602 

Markets

16,805 

29,787 

396 

305 

1.3 

77 

13 

86 

Other

5,232 

3,006 

nm 








 

 

Core

30,917 

396,756 

19,766 

10,062 

5.0 

51 

729 

688 

Non-Core

477 

56,343 

21,374 

11,200 

37.9 

52 

673 

733 


 

 

 

 

 

 

 

 

Group

31,394 

453,099 

41,140 

21,262 

9.1 

52 

1,402 

1,421 

 

nm = not meaningful

 

Key points

·

REIL at £41.0 billion remained broadly unchanged with a decrease of £0.6 billion in Non-Core being partially offset by the continued increase in Ulster Bank mortgage portfolios as the economic conditions remain challenging. Excluding the impact of foreign currency movements (£0.9 billion), REIL decreased by £1.0 billion.

·

Provision coverage remained in line with the year end at 52% while REIL as a percentage of total loans decreased marginally from 9.1% to 9.0%.

·

The impairment charge of £1,036 million was 26% or £366 million lower than Q4 2012 with reductions in both Core (£130 million) and Non-Core (£236 million).

·

The economic outlook in Ireland appears to be stabilising, though uncertainty remains. While trends are showing improvement, Ulster Bank's REIL remained elevated; REIL as a percentage of loans increased marginally to 24.0%, though provision coverage increased to 53%.


 

Additional analyses of loan and related credit metrics are included in Appendix 3.



 

Risk and balance sheet management (continued)

 

Credit risk: (continued)

 

Debt securities

The table below analyses debt securities by issuer and IFRS measurement classifications. US central and local government includes US federal agencies; financial institutions includes US government sponsored agencies and securitisation entities.

 


Central and local government

Banks 

Other 

financial 

institutions 

Corporate 

Total 


Of which 

ABS (1)

UK 

US 

Other 

31 March 2013

£m 

£m 

£m 

£m 

£m 

£m 

£m 


£m 


 

 

 

 

 

 

 

 

 

Held-for-trading (HFT)

8,109 

16,259 

25,823 

1,940 

24,801 

2,233 

79,165 

 

20,507 

Designated as at fair value

134 

523 

15 

674 

 

521 

Available-for-sale (AFS)

8,273 

19,097 

13,313 

7,124 

21,518 

215 

69,540 

 

29,417 

Loans and receivables

151 

3,499 

247 

3,902 

 

3,413 


 

 

 

 

 

 

 

 

 

Long positions

16,387 

35,356 

39,270 

9,217 

50,341 

2,710 

153,281 

 

53,858 


 

 

 

 

 

 

 

 

 

Of which US agencies

6,377 

22,478 

28,855 

 

26,201 


 

 

 

 

 

 

 

 

 

Short positions (HFT)

(2,480)

(11,788)

(11,222)

(1,121)

(1,622)

(1,149)

(29,382)

 

(59)


 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

Gross unrealised gains

913 

986 

991 

69 

674 

3,640 

 

761 

Gross unrealised losses

(30)

(10)

(310)

(1,169)

(4)

(1,523)

 

(1,508)


 

 

 

 

 

 

 

 

 

31 December 2012

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Held-for-trading

7,692 

17,349 

27,195 

2,243 

21,876 

2,015 

78,370 


18,619 

Designated as at fair value

123 

86 

610 

54 

873 


516 

Available-for-sale

9,774 

19,046 

16,155 

8,861 

23,890 

3,167 

80,893 


30,743 

Loans and receivables

365 

3,728 

390 

4,488 


3,707 











Long positions

17,471 

36,395 

43,473 

11,555 

50,104 

5,626 

164,624 


53,585 











Of which US agencies

5,380 

21,566 

26,946 


24,828 











Short positions (HFT)

(1,538)

(10,658)

(11,355)

(1,036)

(1,595)

(798)

(26,980)


(17)











Available-for-sale










Gross unrealised gains

1,007 

1,092 

1,187 

110 

660 

120 

4,176 


764 

Gross unrealised losses

(1)

(14)

(509)

(1,319)

(4)

(1,847)


(1,817)

 

Note:

(1)

Asset-backed securities.

 

Key points

·

HFT: decreases in other government bonds, due to maturities and sales of Japanese securities, were partially offset by an increase in German bonds. Increases in other financial institutions relates to increase in US agency securities.

 


·

AFS: The reduction primarily relates to debt securities of £7.2 billion in Direct Line Group at 31 December 2012, not included at 31 March 2013 as Direct Line Group is an associated undertaking with effect from 13 March 2013 as the Group has ceded control.

 

Refer to Appendix 3 for an analysis of AFS reserves.



 

Risk and balance sheet management (continued)

 

Credit risk (continued)

 

Derivatives

The table below analyses the fair value of the Group's derivatives by type of contract. Master netting arrangements in respect of mark-to-market (mtm) positions and collateral shown below do not result in a net presentation in the Group's balance sheet under IFRS.

 

 

31 March 2013


31 December 2012

 

Notional (1)

Assets 

Liabilities 


Notional (1)

Assets 

Liabilities 

 

£bn 

£m 

£m 


£bn 

£m 

£m 


 

 

 





Interest rate (2)

37,732 

343,225 

330,560 


33,483 

363,454 

345,565 

Exchange rate

5,830 

73,293 

80,414 


4,698 

63,067 

70,481 

Credit

567 

11,445 

10,639 


553 

11,005 

10,353 

Other (3)

123 

4,474 

8,270 


111 

4,392 

7,941 


 

 

 


 




 

432,437 

429,883 


 

441,918 

434,340 

Counterparty mtm netting

 

(366,419)

(366,419)


 

(373,906)

(373,906)

Cash collateral

 

(33,340)

(29,039)


 

(34,099)

(24,633)

Securities collateral

 

(5,564)

(7,063)


 

(5,616)

(8,264)


 

 

 


 




 

27,114 

27,362 


 

28,297 

27,537 

 

Notes:

(1)

Exchange traded contracts were £2,268 billion (31 December 2012 - £2,497 billion), principally interest rate. Trades are generally closed out daily hence carrying values were insignificant (assets - £32 million; liabilities - £273 million).

(2)

Interest rate notional includes £20,747 billion (31 December 2012 - £15,864 billion) in respect of contracts with central clearing counterparties to the extent related assets and liabilities are netted.

(3)

Comprises equity and commodity derivatives.

 

Key points 

·

Net exposure, after taking account of position and collateral netting arrangements, decreased by 4% (liabilities decreased by 1%) due to lower derivative fair values, driven by market movements and increased use of trade compression cycles.

 


·

Interest rate contracts decreased due to downward shifts in interest rate yields and increased use of trade compression cycles reflecting a greater number of market participants and hence trade-matching. This was partially offset by higher trade volumes and exchange rate movements.

 


·

The impact of exchange rate movements and higher trade volumes resulted in an increase in exchange rate contracts.

 


·

The increase in credit derivatives reflected exchange rate movements and widening of credit spreads in Europe due to the uncertain economic environment. This was partially offset by increased use of trade compression cycles and tightening of US credit spreads.

 


 

Risk and balance sheet management (continued)

 

Market risk

 

Value-at-risk (VaR)

For a description of the Group's basis of measurement and methodologies, refer to pages 243 to 247 of the Group's 2012 Annual Report and Accounts.

 

 

 

Quarter ended

 

31 March 2013

 

31 December 2012

 

31 March 2012

 

Average 

Period end 

Maximum 

Minimum 

 

Period end 

Maximum 

Minimum 

 

Average 

Period end 

Maximum 

Minimum 

Trading VaR

£m 

£m 

£m 

£m 

 

£m 

£m 

£m 

£m 

 

£m 

£m 

£m 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

47.7 

38.9 

78.2 

35.4 

 

59.1 

75.6 

82.1 

40.8 

 

73.8 

68.3 

95.7 

51.2 

Credit spread

76.3 

70.8 

86.8 

69.8 

 

68.7 

74.1 

76.9 

57.2 

 

84.2 

88.5 

94.9 

72.6 

Currency

10.5 

13.0 

20.6 

4.6 

 

7.1 

7.6 

11.6 

2.6 

 

12.5 

11.1 

21.3 

8.2 

Equity

6.8 

8.5 

11.6 

4.2 

 

5.3 

3.9 

9.2 

1.7 

 

7.5 

6.3 

12.5 

4.7 

Commodity

1.5 

2.6 

3.7 

0.9 

 

2.2 

1.5 

3.5 

1.3 

 

2.5 

1.3 

6.0 

1.0 

Diversification (1)

 

(40.1)

 

 

 

 

(55.4)

 

 

 

 

(69.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

106.9 

93.7 

118.8 

88.4 

 

92.4 

107.3 

113.4 

72.3 

 

116.6 

106.5 

137.0 

97.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core

89.8 

77.3 

104.6 

74.7 

 

75.8 

88.1 

94.6 

58.4 

 

82.8 

74.5 

118.0 

63.6 

Non-Core

22.0 

20.3 

24.9 

18.1 

 

23.4 

22.8 

25.7 

22.0 

 

38.7 

39.3 

41.9 

34.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CEM (2)

76.3 

62.2 

85.4 

61.0 

 

80.8 

84.9 

86.0 

71.7 

 

79.1 

78.5 

84.2 

73.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total (excluding CEM)

51.1 

45.0 

60.4 

41.2 

 

49.3 

57.6 

61.1 

33.2 

 

53.5 

56.6 

76.4 

41.0 

 

Notes:

(1)

The Group benefits from diversification, which reflects the risk reduction achieved by allocating investments across various financial instrument types, currencies and markets. The extent of diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time.

(2)

Counterparty exposure management.

 


 

Risk and balance sheet management (continued)

 

Market risk (continued)

 

Value-at-risk (VaR) (continued)

 

Key points

·

The Group's interest rate VaR was lower in Q1 2013 than in both Q4 2012 and Q1 2012 reflecting continued de-risking by a number of Markets businesses.

 

 

·

The average credit spread VaR was slightly higher than in Q4 2012, as Markets Delta business repositioned its exposure to European periphery countries.

 

 

·

The period end and average currency VaR were higher in Q1 2013 than in Q4 2012, reflecting a reduction in downside protection in Markets currencies business during February.

 

 

·

In March 2013, CEM made improvements to how certain valuation adjustments are captured in VaR. This resulted in lower VaR in Q1 2013. The impact on the Group's Total, Core and Non-Core VaR was less significant.

 

Non-trading VaR

The average VaR for the Group's non-trading portfolio predominantly comprising available-for-sale portfolios in Markets, Non-Core and International Banking, was £8.9 million (Q4 2012 - £ 9.4 million; Q1 2012 - £15.7 million). The period end VaR increased from £9.5 million at Q4 2012 to £13.6 million as a result of changes to the call assumptions on certain Dutch RMBS, which caused their weighted average life to extend.

 

Other portfolios

The Structured Credit Portfolio in Non-Core is measured on a notional and fair value basis due to its illiquid nature. Notional and fair value decreased to £1.6 billion and £1.2 billion respectively (31 December 2012 - £2.0 billion and £1.5 billion) reflecting the sale of underlying assets from CDO collateral pools and legacy conduits. The reductions were across all CDO, CLO, MBS and other ABS asset classes.

 


 

Risk and balance sheet management (continued)

 

Country risk: Summary tables

Country risk is the risk of material losses arising from significant country-specific events such as sovereign events (default or restructuring); economic events (contagion of sovereign default to other parts of the economy, cyclical economic shock); political events (transfer or convertibility restrictions, expropriation or nationalisation); and conflict. Such events have the potential to affect elements of the Group's credit portfolio that are directly or indirectly linked to the country in question and can also give rise to market, liquidity, operational and franchise risk-related losses. The table below shows the Group's exposure by country of incorporation of the counterparty. Refer to Appendix 3 for basis of selection, overview and additional data on eurozone periphery countries.

 


31 March 2013


Lending


Debt 

securities 




Balance 

sheet 


Off- 

balance 

sheet 


CDS 

notional 

less fair 

value 




Govt 

Central 

banks 

Other 

banks 

Other 

FI 

Corporate 

Personal 

Total 

Lending 


Of which 

Non-Core 

Net

Gross

Derivatives 

Repos

Derivatives 

Repos 


£m 

£m 

£m 

£m 

£m 

£m 

£m 


£m 


£m 


£m 

£m 


£m 


£m 


£m 


£m 

£m 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eurozone

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ireland

44 

44 

99 

522 

18,235 

18,393 

37,337 

 

9,679 

 

857 

 

1,628 

179 

 

40,001 

 

3,135 

 

(172)

 

16,914 

7,086 

Spain

49 

54 

4,202 

347 

4,660 

 

2,736 

 

5,551 

 

1,582 

 

11,793 

 

1,854 

 

(364)

 

5,418 

2,279 

Italy

10 

22 

145 

103 

1,425 

24 

1,729 

 

811 

 

1,328 

 

2,290 

 

5,347 

 

2,540 

 

(384)

 

9,546 

88 

Portugal

257 

265 

 

152 

 

246 

 

486 

 

997 

 

234 

 

(130)

 

592 

695 

Greece

181 

14 

197 

 

60 

 

 

372 

 

569 

 

34 

 

 

611 

Cyprus

289 

14 

303 

 

125 

 

 

34 

 

337 

 

41 

 

 

48 

14 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Germany

16,037 

488 

108 

3,435 

82 

20,150 

 

2,476 

 

11,889 

 

9,873 

576 

 

42,488 

 

7,367 

 

(1,232)

 

54,876 

11,289 

Netherlands

30 

2,021 

453 

1,570 

4,160 

24 

8,258 

 

1,885 

 

8,567 

 

8,814 

146 

 

25,785 

 

11,235 

 

(1,460)

 

23,131 

7,649 

France

503 

2,737 

131 

2,312 

75 

5,758 

 

1,493 

 

4,913 

 

6,259 

348 

 

17,278 

 

9,727 

 

(2,023)

 

43,349 

18,822 

Belgium

183 

235 

445 

21 

884 

 

372 

 

1,185 

 

3,194 

98 

 

5,361 

 

1,350 

 

(239)

 

4,751 

2,100 

Luxembourg

23 

151 

792 

1,829 

2,799 

 

953 

 

120 

 

1,505 

155 

 

4,579 

 

2,514 

 

(251)

 

3,004 

6,005 

Other

107 

47 

746 

14 

917 

 

91 

 

925 

 

1,617 

15 

 

3,474 

 

1,315 

 

(244)

 

5,660 

1,828 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other countries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Japan

641 

254 

167 

346 

14 

1,422 

 

65 

 

3,245 

 

2,276 

208 

 

7,151 

 

682 

 

(56)

 

12,563 

19,753 

India

98 

806 

49 

3,104 

88 

4,145 

 

178 

 

1,304 

 

81 

 

5,530 

 

925 

 

(21)

 

188 

69 

China

160 

998 

79 

618 

35 

1,892 

 

37 

 

289 

 

1,024 

71 

 

3,276 

 

552 

 

55 

 

1,024 

3,696 

South Korea

18 

557 

50 

436 

1,062 

 

 

330 

 

321 

18 

 

1,731 

 

853 

 

(44)

 

689 

818 

Turkey

118 

123 

74 

91 

915 

12 

1,333 

 

236 

 

246 

 

66 

 

1,645 

 

410 

 

(69)

 

89 

623 

Brazil

914 

125 

1,042 

 

60 

 

490 

 

44 

 

1,576 

 

198 

 

219 

 

62 

Russia

48 

868 

304 

60 

1,282 

 

57 

 

258 

 

27 

 

1,567 

 

384 

 

(182)

 

27 

Romania

20 

153 

333 

329 

839 

 

837 

 

199 

 

 

1,041 

 

82 

 

(21)

 

Poland

10 

549 

567 

 

15 

 

423 

 

29 

 

1,019 

 

611 

 

(85)

 

45 



 

Risk and balance sheet management (continued)

 

Country risk: Summary tables (continued)


31 December 2012


Lending


Debt 

securities 


 


Balance 

sheet 

 

Off- 

balance 

sheet 

 

CDS 

notional 

less fair 

value 


 

Govt 

Central 

Banks 

Other 

Banks 

Other 

FI 

Corporate 

Personal 

Total 

Lending 

 

Of which 

Non-Core 

Net

Gross

Derivatives 

Repos 

Derivatives 

Repos 


£m 

£m 

£m 

£m 

£m 

£m 

£m 

 

£m 

 

£m 

 

£m 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

£m 




















 

 

 

 

 

Eurozone

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ireland

42 

73 

98 

532 

17,921 

17,893 

36,559 

 

9,506 

 

787 


1,692 

579 


39,617 

 

2,958 

 

(137)

 

17,066 

7,994 

Spain

59 

4,260 

340 

4,666 

 

2,759 

 

5,374 


1,754 


11,794 

 

1,624 

 

(375)

 

5,694 

610 

Italy

21 

200 

218 

1,392 

23 

1,863 

 

900 

 

1,607 


2,297 


5,767 

 

2,616 

 

(492)

 

9,597 

Portugal

336 

343 

 

251 

 

215 


514 


1,072 

 

258 

 

(94)

 

618 

26 

Greece

179 

14 

201 

 

68 

 


360 


562 

 

27 

 

(4)

 

623 

Cyprus

274 

15 

291 

 

121 

 


35 


330 

 

47 

 

 

54 

15 


 

 

 

 

 

 

 

 

 

 

 





 

 

 

 

 

 

 

 

Germany

20,018 

660 

460 

3,756 

83 

24,977 

 

2,817 

 

12,763 


9,476 

323 


47,539 

 

7,294 

 

(1,333)

 

57,202 

8,407 

Netherlands

1,822 

496 

1,785 

3,720 

26 

7,856 

 

2,002 

 

8,447 


9,089 

354 


25,746 

 

11,473 

 

(1,470)

 

23,957 

10,057 

France

494 

2,498 

124 

2,426 

71 

5,622 

 

1,621 

 

5,823 


7,422 

450 


19,317 

 

9,460 

 

(2,197)

 

44,920 

14,324 

Belgium

186 

249 

414 

22 

871 

 

368 

 

1,408 


3,140 

50 


5,469 

 

1,308 

 

(233)

 

4,961 

1,256 

Luxembourg

13 

99 

717 

1,817 

2,650 

 

973 

 

251 


1,462 

145 


4,508 

 

2,190 

 

(306)

 

3,157 

5,166 

Other

126 

19 

90 

856 

14 

1,105 

 

88 

 

1,242 


1,737 

11 


4,095 

 

1,269 

 

(194)

 

6,029 

2,325 


 

 

 

 

 

 

 

 

 

 

 





 

 

 

 

 

 

 

 

Other countries

















 

 

 

 

 

 

Japan

832 

315 

193 

319 

15 

1,674 

 

123 

 

6,438 


2,883 

199 


11,194 

 

622 

 

(70)

 

13,269 

16,350 

India

100 

1,021 

48 

2,628 

106 

3,903 

 

170 

 

1,074 


64 


5,041 

 

914 

 

(43)

 

167 

108 

China

183 

829 

48 

585 

29 

1,676 

 

33 

 

262 


903 

94 


2,935 

 

739 

 

50 

 

903 

3,833 

South Korea

22 

771 

71 

289 

1,155 

 

 

307 


221 

30 


1,713 

 

704 

 

(60)

 

616 

449 

Turkey

115 

163 

82 

94 

928 

12 

1,394 

 

258 

 

181 


93 


1,668 

 

481 

 

(36)

 

114 

449 

Brazil

950 

125 

1,078 

 

60 

 

596 


73 


1,747 

 

189 

 

393 

 

85 

Russia

53 

848 

14 

494 

55 

1,464 

 

56 

 

409 


23 


1,896 

 

391 

 

(254)

 

23 

Romania

20 

65 

347 

331 

774 

 

773 

 

315 



1,092 

 

80 

 

(12)

 

Poland

164 

16 

536 

722 

 

26 

 

289 

 

36 

 

1,047 

 

802 

 

(84)

 

54 

29 

 


 

Additional information

 

Share information


31 March 

2013 

31 December 

2012 




Ordinary share price

275.5p 

324.5p 




Number of ordinary shares in issue

6,108m 

6,071m 

 

 

Statutory results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2012 will be filed with the Registrar of Companies following the company's Annual General Meeting. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

 

The Q1 2013 results have not been audited or reviewed by the auditors.

 

Financial calendar



2013 interim results

Friday 2 August 2013



2013 third quarter interim management statement

Friday 1 November 2013

 

 

 


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