Interim Management Statement

RNS Number : 5061L

Royal Bank of Scotland Group PLC

07 May 2010

 

Risk and capital management (continued)

Other risk exposures

Explanatory note

These disclosures provide information on certain elements of the Group's business activities affected by the unprecedented market events which began during the second half of 2007, the majority of which reside within Non-Core and, to a lesser extent, Global Banking & Markets ('GBM'), US Retail & Commercial and Group Treasury. For certain disclosures the information presented has been analysed into the Group's Core and Non-Core businesses.

Asset-backed securities (ABS)

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 table below analyses the carrying value of the debt securities portfolio held by the Group.

	31 March   2010	31 December   2009
	£bn	£bn
Securities issued by central and local governments	139.7	134.1
Asset-backed securities	84.4	87.6
Securities issued by corporates, US federal agencies and other entities	13.4	13.4
Securities issued by banks and building societies	14.6	14.0
Total debt securities	252.1	249.1

ABS are securities with an interest in an underlying pool of referenced assets. The risks and rewards of the referenced pool are passed onto investors by the issue of securities with varying seniority, by a special purpose entity.

The Group has exposures to ABS which are predominantly debt securities but can also be held in derivative form. Debt securities include residential mortgage backed securities (RMBS), commercial mortgage backed securities (CMBS), ABS collateralised debt obligations (CDOs) and collateralised loan obligations (CLOs) and other ABS. In many cases the risk on these assets is hedged by way of credit derivative protection, purchased over the specific asset or relevant ABS indices. The counterparty to some of these hedge transactions are monoline insurers.

Risk and capital management(continued)

Other risk exposures: Asset-backed securities (continued)

Asset-backed securities by geography

The table below analyses the gross and net exposures and carrying values of these asset-backed securities by geography of the underlying assets.

	31 March 2010						31 December 2009
	US	UK	Other   Europe	RoW(1)	Total		US	UK	Other   Europe	RoW(1)	Total
	£m	£m	£m	£m	£m		£m	£m	£m	£m	£m
Gross exposure:(2)
RMBS: G10 governments (3)	23,645	226	15,747	-	39,618		26,693	314	16,035	94	43,136
RMBS: prime	2,076	5,244	3,683	236	11,239		2,965	5,276	4,567	222	13,030
RMBS: non-conforming	1,332	2,222	127	-	3,681		1,341	2,138	128	-	3,607
RMBS: sub-prime	1,785	438	193	423	2,839		1,668	724	195	561	3,148
CMBS	3,974	1,667	1,594	65	7,300		3,422	1,781	1,420	75	6,698
CDOs	15,042	328	510	-	15,880		12,382	329	571	27	13,309
CLOs	9,967	114	1,770	86	11,937		9,092	166	2,169	1,173	12,600
Other ABS	3,753	1,909	4,546	1,043	11,251		3,587	1,980	5,031	1,569	12,167
	61,574	12,148	28,170	1,853	103,745		61,150	12,708	30,116	3,721	107,695
Carrying value:
RMBS: G10 governments (3)	24,117	225	15,236	-	39,578		27,034	305	15,604	33	42,976
RMBS: prime	1,819	4,717	3,441	237	10,214		2,696	4,583	4,009	212	11,500
RMBS: non-conforming	996	2,127	127	-	3,250		958	1,957	128	-	3,043
RMBS: sub-prime	956	263	163	401	1,783		977	314	146	387	1,824
CMBS	3,439	1,328	1,008	49	5,824		3,237	1,305	924	43	5,509
CDOs	3,523	122	370	-	4,015		3,275	166	400	27	3,868
CLOs	8,634	80	1,313	74	10,101		6,736	112	1,469	999	9,316
Other ABS	3,250	1,210	4,316	844	9,620		2,886	1,124	4,369	1,187	9,566
	46,734	10,072	25,974	1,605	84,385		47,799	9,866	27,049	2,888	87,602
Net exposure:(2)
RMBS: G10 governments (3)	24,117	225	15,236	-	39,578		27,034	305	15,604	33	42,976
RMBS: prime	1,752	3,782	2,615	198	8,347		2,436	3,747	3,018	172	9,373
RMBS: non-conforming	981	2,127	127	-	3,235		948	1,957	128	-	3,033
RMBS: sub-prime	327	253	154	362	1,096		565	305	137	290	1,297
CMBS	3,073	1,245	676	40	5,034		2,245	1,228	595	399	4,467
CDOs	1,012	75	345	-	1,432		743	124	382	26	1,275
CLOs	1,782	67	1,047	36	2,932		1,636	86	1,104	39	2,865
Other ABS	2,639	934	4,281	663	8,517		2,117	839	4,331	1,145	8,432
	35,683	8,708	24,481	1,299	70,171		37,724	8,591	25,299	2,104	73,718

For notes to this table refer to page 110.

Risk and capital management(continued)

Other risk exposures: Asset-backed securities (continued)

Asset-backed securities by rating

The table below summarises the ratings (refer to note 5 below) of ABS carrying values.

	AAA rated	AA- rated   and above	A- rated   and above	BBB- rated   and above	Sub-  investment   grade	Not   publicly   rated	Total
	£m	£m	£m	£m	£m	£m	£m
31 March 2010
Carrying value:
RMBS: G10 governments (3)	37,116	2,154	217	18	-	73	39,578
RMBS: prime	7,951	890	357	306	689	21	10,214
RMBS: non-conforming	1,899	191	93	386	662	19	3,250
RMBS: sub-prime	561	238	263	72	636	13	1,783
CMBS	3,624	352	1,029	380	213	226	5,824
CDOs	778	672	351	564	1,366	284	4,015
CLOs	3,189	3,879	1,350	666	95	922	10,101
Other ABS	4,054	1,203	1,176	2,175	273	739	9,620
	59,172	9,579	4,836	4,567	3,934	2,297	84,385
31 December 2009
Carrying value:
RMBS: G10 governments (3)	42,426	483	67	-	-	-	42,976
RMBS: prime	9,211	678	507	546	558	-	11,500
RMBS: non-conforming	1,980	198	109	160	594	2	3,043
RMBS: sub-prime	578	121	306	87	579	153	1,824
CMBS	3,440	599	1,022	299	147	2	5,509
CDOs	616	943	254	944	849	262	3,868
CLOs	2,718	4,365	607	260	636	730	9,316
Other ABS	4,098	1,555	1,014	1,947	152	800	9,566
	65,067	8,942	3,886	4,243	3,515	1,949	87,602

Notes:

(1)	Rest of the world.
(2)	Gross exposures represent the principal amounts relating to asset-backed securities.
(3)	RMBS: G10 government securities comprises securities that are:
	(a)	Guaranteed or effectively guaranteed by the US government, by way of its support for US federal agencies and government sponsored enterprises;
	(b)	Guaranteed by the Dutch government; and
	(c)	Covered bonds, referencing primarily Dutch and Spanish government-backed loans.
(4)	Net exposures represent the carrying value after taking account of hedge protection purchased from monoline insurers and other counterparties, but exclude the effect of counterparty credit valuation adjustments.  The hedges provide credit protection of principal and interest cash flows in the event of default by the counterparty.  The value of this protection is based on the underlying instrument being protected.
(5)	Credit ratings are based on those from rating agency Standard & Poor's.  Moody's and Fitch have been mapped onto the Standard & Poor's scale.

Risk and capital management (continued)

Other risk exposures: Asset-backed securities (continued)

Asset-backed securities by rating

Key points

·	The total carrying value of asset-backed securities decreased by 4% from £87.6 billion at 31 December 2009 to £84.4 billion at 31 March 2010, principally due to net sales and maturities of £21.5 billion, partially offset by additions of £13.9 billion, exchange rate movements of £3.6 billion and fair value increases.
·	Life-to-date net valuation losses on ABS held at 31 March 2010, including impairment provisions, were £19.4 billion (31 December 2009 - £20.1 billion) comprising:
		·	RMBS: £2.6 billion (2009 - £3.6 billion), of which £0.8 billion (2009 - £0.7 billion) was in US sub-prime and £1.6 billion (31 December 2009 - £2.3 billion) relates to European assets;
		·	CMBS: £1.5 billion (31 December 2009 - £1.2 billion), primarily European assets;
		·	CDOs and CLOs of £11.9 billion (31 December 2009 - £9.4 billion) and £1.8 billion (31 December 2009 - £3.3 billion) significantly all relating to US assets in the Non-Core division.  Many of these assets have market hedges in place giving rise to a significant difference between the carrying value and the net exposure; and
		·	Other ABS: £1.6 billion (31 December 2009 - £2.6 billion).
·		The majority of the Group's exposure to ABS was through government-backed RMBS of £39.6 billion at 31 March 2010 (31 December 2009 - £43.0 billion):
		·	US government-backed securities were £24.1 billion (31 December 2009 - £27.0 billion). Due to the US government backing, explicit or implicit, in these securities, the counterparty credit risk exposure is low.  This is comprised of:
			·      Held-for-trading securities of £9.4 billion (31 December 2009 - £13.4 billion); increased activity in GBM Mortgage Trading allowed the opportunity to reposition and sell down US agency positions following market developments; and
			·      Available-for-sale exposures of £14.7 billion (31 December 2009 - £13.6 billion) relate to liquidity portfolios held by US Retail & Commercial.
		·	UK and other European government-backed exposures of £15.5 billion (31 December 2009 - £15.9 billion) primarily Dutch and Spanish government-backed loans and covered bonds.
·		CDOs remained broadly flat at £4.0 billion (31 December 2009 - £3.9 billion).
·		CLOs increased from £9.3 billion at 31 December 2009 to £10.1 billion at 31 March 2010, driven primarily by foreign exchange movements and improvements in prices.
·		AAA-rated assets decreased from £65.1 billion at 31 December 2009 to £59.2 billion at 31 March 2010 primarily as a result of the sell-down activity of prime and government backed securities.  The US government ended its main mortgage-backed securities purchase programme in Q1 due to improved economic conditions.  GBM Mortgage Trading anticipated downward pressure on prices and demand and sold off positions.

Risk and capital management(continued)

Other risk exposures: Credit valuation adjustments

Credit valuation adjustments (CVA)

CVA represents an estimate of the adjustment to arrive at fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures.  The Group records CVA against exposures it has to these counterparties. 

	31 March  2010	31 December   2009
	£m	£m
Monoline insurers	3,870	3,796
CDPCs	465	499
Other counterparties	1,737	1,588
Total CVA adjustments	6,072	5,883

Key points

·	Total CVA held against exposures to monoline insurers and CDPCs remained stable reflecting the net effect on exposures of higher prices of underlying reference instruments being offset by the weakening of sterling against the US and Canadian dollar. The overall credit quality of the counterparties was broadly unchanged.
·	The increase in CVA held against exposures to other counterparties was primarily driven by rating downgrades of a number of counterparties during the quarter.

Monoline insurers

The Group purchased protection from monolines, mainly against specific asset-backed securities. Monolines specialise in providing credit protection against the principal and interest cash flows due to the holders of debt instruments in the event of default by the debt instrument counterparty.  This protection is typically held in the form of derivatives such as credit default swaps referencing underlying exposures held directly or synthetically by the Group.

The table below summarises the Group's exposure to monolines, all of which are in the Non-Core division.

	31 March  2010	31 December   2009
	£m	£m
Gross exposure to monolines	6,189	6,170
Hedges with financial institutions	(548)	(531)
Credit valuation adjustment	(3,870)	(3,796)
Net exposure to monolines	1,771	1,843
CVA as a % of gross exposure	63%	62%

Risk and capital management (continued)

Other risk exposures: Credit valuation adjustments (continued)

Monoline insurers (continued)

Key points

·		The exposures to monolines remained flat. Whilst the exposure in trade currency (mostly US dollar) decreased due to higher prices of underlying reference instruments, this was offset by the weakening of sterling against the US dollar.
·		The CVA also remained fairly stable on both a total and relative basis, with credit spread and recovery rate moves largely offsetting each other.
·		There have not been any changes to the methodology used to calculate the monoline CVA.  However following market events in the quarter, the CVA calculation was modified to reference more conservative internally assessed recovery levels, resulting in a higher CVA reserve.
·		Counterparty and credit RWAs relating to risk structures incorporating gross monoline exposures decreased from £13.7 billion to £8.6 billion over the quarter.  Regulatory intervention at certain monolines triggered credit events in the quarter. The exposure to these counterparties was excluded from the RWA calculations with capital deductions totalling £171 million taken instead.  This, combined with an improvement in the rating of an underlying bond portfolio held by the Group to investment grade status, were the main drivers of the reduction.

Risk and capital management (continued)

Other risk exposures: Credit valuation adjustments (continued)

Monoline insurers (continued)

The table below summarises monoline exposures by rating.  Credit ratings are based on those from rating agencies, Standard & Poor's and Moody's.  Where the ratings differ, the lower of the two is taken.

	Notional:   protected    assets	Fair value:  protected  assets	Gross   exposure	CVA	Hedges	Net  exposure
	£m	£m	£m	£m	£m	£m
31 March 2010
AA rated	7,408	6,209	1,199	379	-	820
Sub-investment grade	13,092	8,102	4,990	3,491	548	951
	20,500	14,311	6,189	3,870	548	1,771
Of which:
CDOs	2,259	742	1,517	1,109
RMBS	85	72	13	1
CMBS	4,450	2,088	2,362	1,654
CLOs	10,458	9,193	1,265	584
Other ABS	2,705	1,897	808	401
Other	543	319	224	121
	20,500	14,311	6,189	3,870
31 December 2009
AA rated	7,143	5,875	1,268	378	-	890
Sub-investment grade	12,598	7,696	4,902	3,418	531	953
	19,741	13,571	6,170	3,796	531	1,843
Of which:
CDOs	2,284	797	1,487	1,059
RMBS	82	66	16	2
CMBS	4,253	2,034	2,219	1,562
CLOs	10,007	8,584	1,423	641
Other ABS	2,606	1,795	811	410
Other	509	295	214	122
	19,741	13,571	6,170	3,796

Risk and capital management (continued)

Other risk exposures: Credit valuation adjustments (continued)

Monoline insurers (continued)

The table below analyses the net income statement effect relating to monoline exposures.

	£m
Credit valuation adjustment at 1 January 2010	(3,796)
Credit valuation adjustment at 31 March 2010	(3,870)
Increase in credit valuation adjustment	(74)
Net credit relating to realisation, hedges, foreign exchange and other movements	214
Net debit relating to reclassified debt securities	(90)
Net credit to income statement (1)	50

Note:

(1)

Comprises £23 million of reversals of impairment losses and £27 million of other income relating to reclassified debt securities.  Income from trading activities was nil.  Net profits arose from a reduction in monoline CVA and associated foreign exchange hedges.  These profits were offset by net fair value losses arising on hedges with monolines relating to reclassified debt securities.

Key points

·		The impact of sterling weakening against the US dollar is the primary cause of the gain arising on foreign exchange, hedges, realisations and other movements.
·		The net loss arising from the effect of reclassifying debt securities is due to the difference between impairment losses on these available-for-sale securities and the gains that would have been reported in the income statement if these assets had continued to be classified as held-for-trading.

Cumulative net losses of £165 million relating to reclassified debt securities have not been recognised in the income statement.

Credit derivative product companies

A credit derivative product company (CDPC) is a company that sells protection against credit derivatives.  CDPCs are similar to monoline insurers; however they are not regulated as insurers.

The Group has purchased credit protection from CDPCs through tranched and single name credit derivatives.  The Group's exposure to CDPCs is predominantly due to tranched credit derivatives.

The table below summarises the Group's exposure to CDPCs.

	31 March   2010	31 December   2009
	£m	£m
Gross exposure to CDPCs	1,243	1,275
Credit valuation adjustment	(465)	(499)
Net exposure to CDPCs	778	776
CVA as a % of gross exposure	37%	39%

Risk and capital management (continued)

Other risk exposures: Credit valuation adjustments (continued)

Credit derivative product companies (continued)

Key points

·		The exposure to CDPCs has remained stable. The exposure in trade currency (US and Canadian dollar) decreased due to a combination of trade commutations, tighter credit spreads of the underlying loans and bonds and a decrease in the relative value of senior tranches compared with the underlying reference portfolios. This decrease was offset by the weakening of sterling.
·		The CVA also remained fairly constant, on both a total and relative basis, reflecting general stability in the credit quality of CDPCs.
·		There have not been any changes to the methodology used to calculate the CDPC CVA.
·		Counterparty and credit RWAs relating to gross CDPC exposures increased from £7.5 billion to £7.9 billion during the quarter. Capital deductions at 31 March 2010 were £309 million (31 December 2009 - £347 million). Where the Group limits exposures to certain CDPCs with hedges, these exposures are excluded from the RWA calculations and capital deductions taken instead.
·		The vast majority of CDPC exposure is in Non-Core division.

The table below summarises CDPC exposures by rating.

	Notional:  reference assets	Fair value:  reference assets	Gross  exposure	CVA	Net  exposure
	£m	£m	£m	£m	£m
31 March 2010
AAA rated	1,773	1,752	21	6	15
Sub-investment grade	20,411	19,409	1,002	379	623
Rating withdrawn	3,916	3,696	220	80	140
	26,100	24,857	1,243	465	778
31 December 2009
AAA rated	1,658	1,637	21	5	16
BBB rated	1,070	1,043	27	9	18
Sub-investment grade	17,696	16,742	954	377	577
Rating withdrawn	3,926	3,653	273	108	165
	24,350	23,075	1,275	499	776

Risk and capital management (continued)

Other risk exposures: Credit valuation adjustments (continued)

Credit derivative product companies (continued)

The table below analyses the net income statement effect arising from CDPC exposures.  

	£m
Credit valuation adjustment  at 1 January 2010	(499)
Credit valuation adjustment at 31 March 2010	(465)
Decrease in credit valuation adjustment	34
Net debit relating to hedges, foreign exchange and other movements	(66)
Net debit to income statement (income from trading activities)	(32)

Realised losses arising from trade commutations are the primary cause of the loss arising on foreign exchange, hedges, realisations and other movements.

CVA attributable to other counterparties

CVA for all other counterparties is calculated on a portfolio basis reflecting an estimate of the amount a third party would charge to assume the credit risk.

Expected losses are determined from market implied probability of defaults and internally assessed recovery levels. The probability of default is calculated with reference to observable credit spreads and observable recovery levels. For counterparties where observable data does not exist, the probability of default is determined from the average credit spreads and recovery levels of baskets of similarly rated entities. A weighting of 50% to 100% is applied to arrive at the expected loss. The weighting reflects portfolio churn and varies according to the counterparty credit quality.

Expected losses are applied to estimated potential future exposures which are modelled to reflect the volatility of the market factors which drive the exposures and the correlation between those factors. Potential future exposures arising from vanilla products (including interest rate and foreign exchange derivatives) are modelled jointly using the Group's core counterparty risk systems. The exposures arising from all other product types are modelled and assessed individually. The potential future exposure to counterparties is the aggregate of the exposures arising on the underlying product types.

Correlation between exposure and counterparty risk is also incorporated within the CVA calculation where this risk is considered significant.  The risk primarily arises on trades with emerging market counterparties where the gross mark-to-market value of the trade, and therefore the counterparty exposure, increases as the strength of the local currency declines.

Collateral held under a credit support agreement is factored into the CVA calculation.  In such cases CVA is held to the extent that residual risk remains. CVA is not held against the credit default swap protection provided by the Asset Protection Scheme where the Group has purchased protection from HM Treasury, due to the unique features of the contract.

Risk and capital management (continued)

CVA attributable to other counterparties (continued)

The table below analyses the net income statement effect arising from the change in level of CVA for all other counterparties and related trades.

	£m
Credit valuation adjustment  at 1 January 2010	(1,588)
Credit valuation adjustment at 31 March 2010	(1,737)
Increase in credit valuation adjustment	(149)
Net credit relating to hedges, foreign exchange and other movements	12
Net debit to income statement (income from trading activities)	(137)

Key point

·	The increase in CVA against other counterparties was primarily driven by rating downgrades of a number of counterparties over the quarter.

Risk and capital management (continued)

Other risk exposures: Leveraged finance

The table below analyses the Group's global markets sponsor-led leveraged finance exposures by industry and geography. The gross exposure represents the total amount of leveraged finance committed by the Group (drawn and undrawn). The net exposure represents the balance sheet carrying values of drawn leveraged finance and the total undrawn amount. The difference between gross and net exposures is principally due to the cumulative effect of impairment provisions and historic write-downs on assets prior to reclassification.

	31 March 2010						31 December 2009
	Americas	UK	Other  Europe	RoW	Total		Americas	UK	Other  Europe	RoW	Total
	£m	£m	£m	£m	£m		£m	£m	£m	£m	£m
Gross exposure:
TMT (2)	1,322	1,651	920	630	4,523		1,781	1,656	1,081	605	5,123
Industrial	1,625	1,187	1,615	242	4,669		1,584	1,523	1,781	207	5,095
Retail	24	382	1,161	64	1,631		17	476	1,354	71	1,918
Other	231	1,372	1,101	225	2,929		244	1,527	1,168	191	3,130
	3,202	4,592	4,797	1,161	13,752		3,626	5,182	5,384	1,074	15,266
Net exposure:
TMT (2)	1,122	1,533	911	528	4,094		1,502	1,532	1,045	590	4,669
Industrial	383	1,079	1,440	233	3,135		524	973	1,594	205	3,296
Retail	24	348	1,098	61	1,531		17	445	1,282	68	1,812
Other	228	1,303	1,092	226	2,849		244	1,461	1,147	191	3,043
	1,757	4,263	4,541	1,048	11,609		2,287	4,411	5,068	1,054	12,820
Of which:
Drawn	1,377	3,735	3,680	895	9,687		1,944	3,737	3,909	950	10,540
Undrawn	380	528	861	153	1,922		343	674	1,159	104	2,280
	1,757	4,263	4,541	1,048	11,609		2,287	4,411	5,068	1,054	12,820

Notes:

(1)	All the above exposures are in the Non-Core division.
(2)	Telecommunications, Media and Technology.

Key points

·		The Group's sterling exposure has reduced as a result of sales and restructurings of £0.9 billion and £0.4 billion of repayments and re-financings. These reductions were partially offset by the strengthening of the US dollar and euro against sterling during the period.
·		Credit impairments and write-offs during the quarter were £198 million.

Not included in the table above are:
·		UK Corporate leveraged finance net exposures of £7.5 billion at 31 March 2010 (31 December 2009 - £7.1 billion), mainly to the retail and industrial sectors.
·		Ulster Bank leveraged finance net exposures of £0.6 billion at 31 March 2010 and 31 December 2009.

Risk and capital management (continued)

Other risk exposures: Special purpose entities

For background on the Group's involvement with securitisations and special purpose entities, refer to the Business review section of the 2009 Annual Report and Accounts.

The table below analyses the asset categories together with the carrying amount of the assets and associated liabilities for those securitisations and other asset transfers, other than conduits (discussed below), where the assets continue to be recorded on the Group's balance sheet.

	31 March 2010			31 December 2009
	Assets	Liabilities		Assets	Liabilities
	£m	£m		£m	£m
Residential mortgages	68,820	16,031		69,927	15,937
Credit card receivables	2,666	1,614		2,975	1,592
Other loans	36,261	1,000		36,448	1,010
Finance lease receivables	613	613		597	597

Conduits

The total assets held by Group-sponsored conduits were £24.1 billion at 31 March 2010 (31 December 2009 - £27.4 billion).  Liquidity commitments from the Group to the conduit exceed the nominal amount of assets funded by the conduit as liquidity commitments are sized to cover the funding cost of the related assets.

The table below analyses the exposure to conduits which are consolidated by the Group.

	31 March 2010				31 December 2009
	Core	Non-Core	Total		Core	Non-Core	Total
	£m	£m	£m		£m	£m	£m
Total assets held by the conduits	20,256	3,862	24,118		23,409	3,957	27,366
Commercial paper issued (1)	19,902	2,830	22,732		22,644	2,939	25,583
Liquidity and credit enhancements:
Deal specific liquidity:
-  drawn	319	1,072	1,391		738	1,059	1,797
-  undrawn	26,426	3,573	29,999		28,628	3,852	32,480
PWCE (2)	1,129	359	1,488		1,167	341	1,508
	27,874	5,004	32,878		30,533	5,252	35,785
Maximum exposure to loss (3)	26,745	4,645	31,390		29,365	4,911	34,276

Notes:

(1)	Excludes own asset conduits established for contingent funding as it does not have any outstanding commercial paper.
(2)	Programme-wide credit enhancement.
(3)	Maximum exposure to loss is determined as the Group's total liquidity commitments to the conduits and additionally programme-wide credit support which would absorb first loss on transactions where liquidity support is provided by a third party. Third party maximum exposure to loss is reduced by repo trades conducted with an external counterparty.

Risk and capital management (continued)

Other risk exposures: Special purpose entities (continued)

The Group also extends liquidity commitments to multi-seller conduits sponsored by other banks, but typically does not consolidate these entities as it does not retain the majority of risks and rewards.

The table below analyses the Group's exposure from third-party conduits.

	31 March 2010				31 December 2009
	Core	Non-Core	Total		Core	Non-Core	Total
	£m	£m	£m		£m	£m	£m
Liquidity and credit enhancements:
Deal specific liquidity:
-  drawn	232	128	360		223	120	343
-  undrawn	219	38	257		206	38	244
	451	166	617		429	158	587
Maximum exposure to loss	451	166	617		429	158	587

Key points

·		During the quarter both multi-seller and own asset conduit assets have been reduced in line with the wider Group balance sheet management.
·		Multi-seller conduits account for 43% of total liquidity and credit enhancements committed by the Group, unchanged from the year end position.
·		The Group's own asset conduit programme was established to diversify the Group's funding sources, including access to the Bank of England's open market operations, with committed liquidity of US$40.8 billion.

 

END

 

 

IMSEADSKELSEEAF