Interim Management Statement

RNS Number : 5065L

Royal Bank of Scotland Group PLC

07 May 2010

 

Appendix 3

The Asset Protection Scheme

Appendix 3 The Asset Protection Scheme

Covered assets: roll forward to 31 March 2010

The table below details the movement in covered assets during the quarter.

	£bn
Covered assets at 31 December 2009	230.5
Disposals	(1.7)
Maturities, repayments, amortisations and other movements	(2.6)
Effect of foreign currency movements	4.7
Covered assets at 31 March 2010 (1)	230.9

Note:

(1)

The covered amount at 31 March 2010 includes approximately £2.0 billion of assets in the derivatives and structured finance asset classes which, for technical reasons, do not currently satisfy, or are anticipated at some stage not to satisfy, the eligibility requirements of the Asset Protection Scheme (APS).  The Asset Protection Agency (APA) and the Group continue to negotiate in good faith whether (and, if so, to what extent) coverage should extend to these assets. Also, the APA and the Group are in discussion over the classifications of some structured credit assets and this may result in adjustments to amounts for some asset classes; however underlying risks will be unchanged.  Whilst good progress is being made, the final outcome is dependent on the Group and the APA reaching agreement by the due date on various areas of interpretation.  Should this not be achieved and the APA does not grant an extension to the Group, cover on these assets may be restricted.

Key point

·	The weakening of sterling against the US dollar accounts for the majority of the foreign exchange movement which has been substantially offset by customer repayments and a number of loan sales.

Credit impairments and write downs

The table below analyses the cumulative credit impairment losses (including available-for-sale reserves) and adjustments to par value relating to covered assets.

	31 March  2010	31 December   2009
	£m	£m
Loans and advances	15,848	14,240
Debt securities	7,795	7,816
Derivatives	6,890	6,834
	30,533	28,890
By division:
UK Retail	2,618	2,431
UK Corporate	1,231	1,007
Global Banking & Markets	1,473	1,628
Ulster Bank	683	486
Non-Core	24,528	23,338
	30,533	28,890

Key point

·	Loan impairments in the Non-Core division accounted for the majority of the increase of £1,643 million in credit impairments and write-downs.

Appendix 3 The Asset Protection Scheme

First loss utilisation

For definitions of triggered amounts and other related aspects, refer to the Group's 2009 Annual Report and Accounts - Business review - Asset Protection Scheme.

The table below details the total triggered amount by division at 31 March 2010.  These exclude cash recoveries.

	31 March   2010	31 December   2009
	£m	£m
UK Retail	3,517	3,340
UK Corporate	3,843	3,570
Global Banking & Markets	2,378	1,748
Ulster Bank	769	704
Non-Core	22,665	18,905
	33,172	28,267

Notes:

(1)

The triggered amount on a covered asset is calculated when an asset is triggered (due to bankruptcy, failure to pay after a grace period, and restructuring with an impairment) and is the lower of the covered amount and the outstanding amount for each covered asset.  Given the grace period before assets trigger, the Group expects additional assets to trigger based on the current risk rating and level of impairments on covered assets.

(2)

There are a number of Scheme rule interpretation issues being discussed between the Group and the APA, the most significant of which is in relation to the interpretation of certain loss triggers.  The Group is using its understanding of the triggers in the above table.

Key points

·	The Group expects recoveries on triggered amounts to be approximately 47% over the life of the relevant assets.
·	On this basis, expected loss on triggered assets at 31 March 2010 is approximately £18 billion (31 December 2009 - £15 billion), or 30% of the £60 billion first loss threshold under the APS.

Appendix 3 The Asset Protection Scheme

Risk-weighted assets

The table below analyses risk-weighted assets by division.

	31 March 2010				31 December 2009
	APS	Non-APS	Total		APS	Non-APS	Total
By division	£bn	£bn	£bn		£bn	£bn	£bn
UK Retail	14.9	34.9	49.8		16.3	35.0	51.3
UK Corporate	26.0	65.3	91.3		31.0	59.2	90.2
Global Banking & Markets	19.2	122.6	141.8		19.9	103.8	123.7
Ulster Bank	9.7	23.1	32.8		8.9	21.0	29.9
Non-Core	55.0	109.3	164.3		51.5	119.8	171.3
Other divisions	n/a	105.5	105.5		n/a	99.4	99.4
Group before APS benefit	124.8	460.7	585.5		127.6	438.2	565.8

Key point

·	Over the first quarter RWAs declined reflecting the reduction in pool size (including disposals) and improvements in risk parameters offset by foreign exchange movements.

 

END

 

 

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