Interim Management Statement

RNS Number : 6732V
Royal Bank of Scotland Group PLC
05 November 2010
 



Condensed consolidated balance sheet

at 30 September 2010 - pro forma

 


30 September 

2010 

30 June 

2010 

31 December 

2009 


£m 

£m 

£m 





Assets




Cash and balances at central banks

61,416 

29,591 

51,548 

Net loans and advances to banks

60,330 

54,471 

48,777 

Reverse repurchase agreements and stock borrowing

48,407 

47,663 

35,097 

Loans and advances to banks

108,737 

102,134 

83,874 

Net loans and advances to customers

528,049 

539,340 

554,654 

Reverse repurchase agreements and stock borrowing

44,503 

39,396 

41,040 

Loans and advances to customers

572,552 

578,736 

595,694 

Debt securities

226,410 

236,260 

249,095 

Equity shares

21,755 

17,326 

15,960 

Settlement balances

22,874 

20,718 

12,024 

Derivatives

548,805 

522,871 

438,199 

Intangible assets

14,369 

14,482 

14,786 

Property, plant and equipment

17,398 

17,608 

17,773 

Deferred taxation

5,907 

5,841 

6,492 

Prepayments, accrued income and other assets

11,903 

13,630 

18,604 

Assets of disposal groups

16,537 

21,656 

18,432 





Total assets

1,628,663 

1,580,853 

1,522,481 





Liabilities




Bank deposits

80,186 

96,614 

115,642 

Repurchase agreements and stock lending

41,465 

44,165 

38,006 

Deposits by banks

121,651 

140,779 

153,648 

Customer deposits

420,639 

420,890 

414,251 

Repurchase agreements and stock lending

87,287 

70,655 

68,353 

Customer accounts

507,926 

491,545 

482,604 

Debt securities in issue

235,083 

217,317 

246,329 

Settlement balances

20,628 

19,730 

10,412 

Short positions

44,004 

42,994 

40,463 

Derivatives

543,397 

508,966 

421,534 

Accruals, deferred income and other liabilities

23,650 

24,842 

24,624 

Retirement benefit liabilities

2,606 

2,600 

2,715 

Deferred taxation

2,237 

2,126 

2,161 

Insurance liabilities

6,782 

6,521 

7,633 

Subordinated liabilities

27,890 

27,523 

31,538 

Liabilities of disposal groups

15,667 

16,999 

18,857 





Total liabilities

1,551,521 

1,501,942 

1,442,518 





Equity




Minority interests

1,542 

2,109 

2,227 

Owners' equity*

75,600 

76,802 

77,736 





Total equity

77,142 

78,911 

79,963 





Total liabilities and equity

1,628,663 

1,580,853 

1,522,481 









* Owners' equity attributable to:




Ordinary and B shareholders

70,856 

72,058 

69,890 

Other equity owners

4,744 

4,744 

7,846 






75,600 

76,802 

77,736 



 

Commentary on condensed consolidated balance sheet - pro forma

 

Total assets of £1,628.7 billion at 30 September 2010 were up £47.8 billion, 3%, compared with 30 June 2010.

 

Cash and balances at central banks were up £31.8 billion, 108% to £61.4 billion.

 

Loans and advances to banks increased by £6.6 billion, 6%, to £108.7 billion. Reverse repurchase agreements and stock borrowing ('reverse repos') were up £0.7 billion, 2% to £48.4 billion and bank placings rose £5.9 billion, 11%, to £60.3 billion as a result of increased placings on the inter-bank markets.

 

Loans and advances to customers were down £6.2 billion, 1%, at £572.6 billion.  Within this, reverse repos were up £5.1 billion, 13%, to £44.5 billion. Excluding reverse repos, customer lending decreased by £11.3 billion, 2%, to £528.0 billion or £9.8 billion before impairment provisions. This reflected reductions, in constant currency terms, in Non-Core of £6.8 billion, together with declines in UK Corporate, £1.7 billion, Global Transaction Services, £1.2 billion, Global Banking & Markets, £1.2 billion and US Retail & Commercial, £1.1 billion together with the effect of exchange rate movements, £0.2 billion. These were offset by growth in UK Retail, £1.9 billion, and Wealth, £0.6 billion.

 

Equity shares increased £4.4 billion, 26%, to £21.8 billion driven by increased holdings within Global Banking & Markets.

 

Settlement balances rose £2.2 billion, 10%, to £22.9 billion as a result of customer activity principally within Global Banking & Markets.

 

Movements in the value of derivative assets, up £25.9 billion, 5%, to £548.8 billion, and liabilities, up £34.4 billion, 7%, to £543.4 billion, primarily reflect changes in interest rates, currency movements, with Sterling strengthening against the US dollar offset in part by weakening against the Euro, and growth in trading volumes.

 

Assets of disposal groups reduced by £5.1 billion, 24%, to £16.5 billion resulting primarily from the completion of disposals of RBS Sempra's Oil, Metals and European Gas & Power business, the Eurosales Finance businesses in France and Germany and certain of the Group's Asian and Latin American businesses.

 

Deposits by banks declined £19.1 billion, 14%, to £121.7 billion, reflecting reduced inter-bank deposits, down £16.4 billion, 17%, to £80.2 billion and decreased repurchase agreements and stock lending ('repos'), down £2.7 billion, 6%, to £41.5 billion.

 

Customer accounts rose £16.4 billion, 3%, to £507.9 billion.  Within this, repos increased £16.6 billion, 24%, to £87.3 billion.  Excluding repos, customer deposits were down £0.2 billion, to £420.6 billion, with reductions, in constant currency terms, in Global Banking & Markets, £4.8 billion, Wealth, £1.4 billion and Ulster Bank, £0.2 billion, together with the effect of exchange rate movements of £1.5 billion. This was partially offset by growth in UK Corporate, £2.6 billion, Global Transaction Services, £2.3 billion, UK Retail, £1.4 billion and US Retail & Commercial, £1.1 billion. 



 

Commentary on condensed consolidated balance sheet - pro forma

 

Debt securities in issue were up £17.8 billion, 8%, to £235.1 billion, principally as a result of the Group's capital raising programme in the third quarter, coupled with movements in Global Banking & Markets.

 

Liabilities of disposal groups declined £1.3 billion, 8%, to £15.7 billion primarily reflecting the completion of several disposals in the quarter.

 

Owners' equity reduced by £1.2 billion, 2%, to £75.6 billion. The attributable loss for the period, £1.1 billion, and exchange rate movements, £0.7 billion, were offset in part by an increase in cash flow hedging reserves, £0.4 billion, and reduced losses in available-for-sale reserves, £0.2 billion.

 

 

 



Condensed consolidated statement of changes in equity

for the period ended 30 September 2010 - pro forma

 


 

 Nine months 

ended 

 30 September 

2010 

 

Six months 

ended 

30 June 

2010 

Year ended 

31 December 

2009 


£m 

£m 

£m 





Called-up share capital




At beginning of period

14,630 

14,630 

9,898 

Ordinary shares issued in respect of placing and open offers

4,227 

B shares issued

510 

Other shares issued during the period

402 

401 

Preference shares redeemed during the period

(2)

(2)

(5)





At end of period

15,030 

15,029 

14,630 





Paid-in equity




At beginning of period

565 

565 

1,073 

Securities redeemed during the period

(132)

(132)

(308)

Transfer to retained earnings

(2)

(2)

(200)





At end of period

431 

431 

565 





Share premium account




At beginning of period

23,523 

23,523 

27,471 

Ordinary shares issued in respect of placing and open offer, net of £95 million expenses

1,047 

Other shares issued during the period

217 

217 

Preference shares redeemed during the period

(4,995)

Redemption of preference shares classified as debt

118 

118 





At end of period

23,858 

23,858 

23,523 





Merger reserve




At beginning of period

25,522 

25,522 

10,881 

Issue of B shares, net of £399 million expenses

24,591 

Transfer to retained earnings

(12,250)

(12,250)

(9,950)





At end of period

13,272 

13,272 

25,522 





Available-for-sale reserves




At beginning of period

(1,755)

(1,755)

(3,561)

Unrealised gains in the period

1,327 

647 

1,202 

Realised (gains)/losses in the period

(535)

(127)

981 

Taxation

(263)

(208)

(377)

Recycled to profit or loss on disposal of businesses, net of £6 million tax

(16)

(16)





At end of period

(1,242)

(1,459)

(1,755)





Cash flow hedging reserve




At beginning of period

(252)

(252)

(876)

Amount recognised in equity during the period

329 

(58)

380 

Amount transferred from equity to earnings in the period

138 

17 

513 

Taxation

(154)

(269)

Recycled to profit or loss on disposal of businesses, net of £20 million tax 

58 

58 





At end of period

119 

(235)

(252)

 



Condensed consolidated statement of changes in equity

for the period ended 30 September 2010 - pro forma (continued)

 


Nine months 

ended 

30 September 

2010 

Six months 

ended 

30 June 

2010 

Year ended 

31 December 

2009 


£m 

£m 

£m 





Foreign exchange reserve




At beginning of period

4,528 

4,528 

6,385 

Retranslation of net assets

997 

1,775 

(2,322)

Foreign currency (losses)/gains on hedges of net assets

(452)

(609)

456 

Taxation

29 

72 

Recycled to profit or loss on disposal of businesses

(17)

(11)





At end of period

5,085 

5,755 

4,528 





Capital redemption reserve




At beginning of period

170 

170 

170 

Preference shares redeemed during the period





At end of period

172 

172 

170 





Contingent capital reserve




At beginning of period

(1,208)

(1,208)

Contingent capital agreement - consideration payable

(1,208)





At end of period

(1,208)

(1,208)

(1,208)





Retained earnings




At beginning of period

12,134 

12,134 

7,542 

(Loss)/profit attributable to ordinary shareholders and other equity owners




- continuing operations

(985)

163 

(2,600)

- discontinued operations

(28)

(30)

(72)

Equity preference dividends paid

(105)

(105)

(878)

Paid-in equity dividends paid, net of tax

(19)

(19)

(57)

Transfer from paid-in equity




- gross

200 

- taxation

(1)

(1)

Equity owners gain on withdrawal of minority interest




- gross

40 

40 

629 

- taxation

(11)

(11)

(176)

Redemption of equity preference shares

(2,968)

(2,968)

Gain on redemption of equity preference shares

609 

609 

Redemption of preference shares classified as debt

(118)

(118)

Transfer from merger reserve

12,250 

12,250 

9,950 

Actuarial losses recognised in retirement benefit schemes




- gross

(3,756)

- taxation

1,043 

Net cost of shares bought and used to satisfy share-based payments 

(11)

(9)

(16)

Share-based payments




- gross

103 

61 

325 

- taxation

12 





At end of period

20,904 

22,003 

12,134 





Own shares held




At beginning of period

(121)

(121)

(104)

Shares purchased during the period

(711)

(704)

(33)

Shares issued under employee share schemes

11 

16 





At end of period

(821)

(816)

(121)





Owners' equity at end of period

75,600 

76,802 

77,736 

 

Condensed consolidated statement of changes in equity

for the period ended 30 September 2010 - pro forma (continued)

 


Nine months 

ended 

30 September 

2010 

Six months 

ended 

30 June 

2010 

Year ended 

31 December 

2009 


£m 

£m 

£m 





Minority interests




At beginning of period

2,227 

2,227 

5,436 

Currency translation adjustments and other movements

57 

91 

(152)

Profit attributable to minority interests

72 

42 

648 

Dividends paid

(172)

(143)

(313)

Movements in available-for-sale securities




- unrealised gains in the period

23 

- realised gains in the period

(359)

Equity raised

Equity withdrawn and disposals

(602)

(68)

(2,436)

Transfer to retained earnings

(40)

(40)

(629)





At end of period

1,542 

2,109 

2,227 





Total equity at end of period

77,142 

78,911 

79,963 





Total comprehensive income/(loss) recognised in the statement of

  changes in equity is attributable as follows:




Minority interests

129 

133 

160 

Preference shareholders

105 

105 

878 

Paid-in equity holders

19 

19 

57 

Ordinary and B shareholders

304 

1,549 

(5,747)






557 

1,806 

(4,652)

 

 



 

Notes to pro forma results 

 

1. Basis of preparation 

 

Pro forma results

The pro forma financial information, prepared using the Group's accounting policies, shows the underlying performance of the Group including the results of the ABN AMRO businesses retained by the Group.  This information is provided to give a better understanding of the results of the Group's operations.  Group operating profit on a pro forma basis excludes:

 

·

amortisation of purchased intangible assets;



·

integration and restructuring costs;



·

gain on redemption of own debt;



·

strategic disposals;



·

bonus tax;



·

Asset Protection Scheme credit default swap - fair value changes; 



·

write-down of goodwill and other intangible assets; and



·

other Consortium Members' interest in shared assets.

 

From 1 April 2010, other than these differences in presentation, the Group's pro forma and statutory results are substantially the same.

 

Acquisition and separation of ABN AMRO

On 17 October 2007, RFS Holdings B.V, completed the acquisition of ABN AMRO Holding N.V which was renamed RBS Holdings N.V. on 1 April 2010 when the shares in ABN AMRO Bank N.V. were transferred to ABN AMRO Group N.V., a holding company for the interests of the Dutch State.  This marked the substantial completion of the restructuring of the activities of ABN AMRO Holding N.V. in accordance with the agreement between the RBSG, the Dutch State and Banco Santander, SA. RBS Holdings N.V. has one direct subsidiary, The Royal Bank of Scotland N.V., a fully operational bank within the Group, which is independently rated and regulated by the Dutch Central Bank.

 



 

Notes to pro forma results (continued)

 

2. Analysis of income, expenses and impairment losses

 


Quarter ended


Nine months ended


30 September 

2010 

30 June 

2010 

30 September 

2009 

 

 

30 September 

2010 

30 September 

2009 


£m 

£m 

£m 


£m 

£m 








Loans and advances to customers

4,720 

4,749 

4,628 


14,171 

16,555 

Loans and advances to banks

153 

132 

196 


424 

676 

Debt securities

702 

1,003 

873 


2,560 

3,115 








Interest receivable

5,575 

5,884 

5,697 


17,155 

20,346 








Customer accounts

961 

954 

962 


2,795 

3,692 

Deposits by banks

328 

418 

574 


1,043 

2,345 

Debt securities in issue

733 

824 

785 


2,411 

3,772 

Subordinated liabilities

175 

60 

263 


435 

995 

Internal funding of trading businesses

(26)

(56)

(148)


(151)

(579)








Interest payable

2,171 

2,200 

2,436 


6,533 

10,225 








Net interest income

3,404 

3,684 

3,261 


10,622 

10,121 








Fees and commissions receivable

2,044 

2,046 

1,919 


6,141 

6,385 

Fees and commissions payable







- banking

(493)

(541)

(450)


(1,500)

(1,614)

- insurance related

(118)

(38)

(95)


(262)

(282)








Net fees and commissions

1,433 

1,467 

1,374 


4,379 

4,489 








Foreign exchange

442 

375 

108 


1,269 

1,767 

Interest rate

866 

202 

1,460 


2,028 

4,317 

Credit

(95)

598 

(591)


968 

(4,142)

Other

219 

327 

320 


894 

1,267 








Income from trading activities

1,432 

1,502 

1,297 


5,159 

3,209 








Operating lease and other rental income

338 

344 

320 


1,025 

982 

Changes in the fair value of securities and other financial assets and liabilities

22 

(165)

45 


(129)

(12)

Changes in the fair value of investment

  properties

(4)

(105)

(6)


(112)

(153)

Profit/(loss) on sale of securities

390 

26 


542 

(148)

Profit on sale of property, plant and

  equipment


21 

27 

Loss on sale of subsidiaries and associates

 (111)

(8)


(111)

(19)

Life business profits/(losses)

49 

(23)

108 


61 

132 

Dividend income

17 

21 

18 


58 

57 

Share of profits less losses of associated entities

17 

(13)


31 

(67)

Other income

(351)

135 

(148)


(199)

(279)








Other operating income

359 

232 

344 


1,187 

520 








Non-interest income (excluding insurance net premium income)

3,224 

3,201 

3,015 


10,725 

8,218 








Insurance net premium income

1,289 

1,278 

1,301 


3,856 

3,958 








Total non-interest income

4,513 

4,479 

4,316 


14,581 

12,176 








Total income

7,917 

8,163 

7,577 


25,203 

22,297 

 

 

 

 

Notes to pro forma results (continued)

 

2. Analysis of income, expenses and impairment losses (continued)

 


Quarter ended


Nine months ended


30 September 

2010 

30 June 

2010 

30 September 

2009 

 

 

30 September 

2010 

30 September 

2009 


£m 

£m 

£m 


£m 

£m 








Staff costs







- wages, salaries and other staff costs

1,860 

1,929 

1,840 


5,984 

5,869 

- social security costs

153 

159 

131 


504 

423 

- pension costs

153 

90 

204 


409 

543 

Premises and equipment

596 

516 

619 


1,640 

1,850 

Other

869 

974 

943 


2,778 

2,904 








Administrative expenses

3,631 

3,668 

3,737 


11,315 

11,589 

Depreciation and amortisation

465 

435 

458 


1,314 

1,339 








Operating expenses

4,096 

4,103 

4,195 


12,629 

12,928 








General insurance

1,092 

1,348 

1,054 


3,547 

2,919 

Bancassurance

50 

(25)

91 


54 

117 








Insurance net claims

1,142 

1,323 

1,145 


3,601 

3,036 















Loan impairment losses

1,908 

2,479 

3,262 


6,989 

10,058 

Securities impairment losses

45 

17 


126 

742 








Impairment losses

1,953 

2,487 

3,279 


7,115 

10,800 

 

Note:

The data above excludes fair value of own debt, amortisation of purchased intangible assets, integration and restructuring costs, gain on redemption of own debt, strategic disposals, bonus tax, Asset Protection Scheme credit default swap - fair value changes and write-down of goodwill and other intangible assets.

 



 

Notes to pro forma results (continued)

 

3. Loan impairment provisions  

Operating profit/(loss) is stated after charging loan impairment losses of £1,908 million (half year ended 30 June 2010 - £5,081 million; year ended 31 December 2009 -£13,090 million). The balance sheet loan impairment provisions increased in the quarter ended 30 September 2010 from £16,166 million to £17,670 million and the movements thereon were:

 


Quarter ended


Half year 

 ended 


Year ended 


30 September 2010

 

 

30 June 

2010 


31 December 

2009 

Core 

Non-Core 

Total 


£m 

£m 

£m 


£m 


£m 









At beginning of period

7,633 

8,533 

16,166 


15,173 


9,451 

Transfers to disposal groups


(67)


(321)

Intra-group transfers

(351)

351 



Currency translation and other adjustments

116 

175 

291 


(160)


(428)

Disposals


(17)


(65)

Amounts written-off

(416)

(329)

(745)


(3,781)


(6,478)

Recoveries of amounts previously

  written-off

80 

85 

165 


150 


325 

Charge to income statement

779 

1,129 

1,908 


5,081 


13,090 

Unwind of discount

(50)

(65)

(115)


(213)


(401)









At end of period

7,791 

9,879 

17,670 


16,166 


15,173 

 

Provisions at 30 September 2010 include £127 million (30 June 2010 - £139 million; 31 December 2009 -£157 million) in respect of loans and advances to banks. The table above excludes impairment charges relating to securities.

 

4. Strategic disposals

 


Quarter ended


 

Nine months ended


30 September 

2010 

30 June 

2010 

30 September 

2009 


30 September 

2010 

30 September 

2009 


£m 

£m 

£m 


£m 

£m 








Gain/(loss) on sale of investments in:







- RBS Asset Management's investment

    strategies business


80 

- Asian branches and businesses

(10)


(10)

- Latin American businesses

-


- RBS Sempra Commodities - oils, metals

    and European gas & power business

11 


11 

- Factoring businesses in France and

    Germany


- Bank of China (1)

(5)


236 

- Linea Directa


212 

Provision for loss on disposal of:







- Latin American business

(142)


(163)

- Asian branches and businesses

(150)


13 

(150)

- Life assurance business

(235)


(235)

- Other

(1)

(27)


(38)









27 

(411)

(155)


(331)

298 

 

Note:

(1)

Including £359 million attributable to minority interests.

 

 

Notes to pro forma results (continued)

 

5. Taxation

The credit/(charge) for taxation differs from the tax credit/(charge) computed by applying the standard UK corporation tax rate of 28% as follows:

 


Quarter ended


Nine months ended


30 September 

2010 

30 June 

2010 

30 September 

2009 


30 September 

2010 

30 September 

2009 


£m 

£m 

£m 


£m 

£m 








(Loss)/profit before tax

(1,379)

1,157 

(2,077)


(243)

(2,062)








Expected tax credit/(charge) at 28%

386 

(324)

582 


68 

578 

Unrecognised timing differences

52 

223 


207 

Other non-deductible items

(77)

(198)

(35)


(306)

(108)

Non-taxable items:







- gain on redemption of own debt

12 


12 

692 

- other

37 

62 

27 


101 

203 

Taxable foreign exchange movements

(5)

(9)


14 

Foreign profits taxed at other rates

(56)

(210)

(126)


(394)

(173)

Reduction in deferred tax asset following

  change in the rate of UK corporation tax

(90)


(90)

Losses in period not recognised

(280)

(83)


(354)

(267)

Losses brought forward and utilised

(1) 


10 

29 

Adjustments in respect of prior periods

58 

51 

(9)


281 

(187)








Actual tax credit/(charge)

261 

(825)

576 


(670)

988 








Effective tax rate

18.9% 

71.3% 

27.7% 


nm 

47.9% 

 

The unusually high tax charge in the first nine months of 2010 reflects profits in high tax regimes and losses in low tax regimes, together with £354 million relating to losses in overseas subsidiaries for which a deferred tax asset has not been recognised, and £166 million mainly in respect of losses on disposal of businesses for which no tax relief is available. This was offset in part by the release of provisions of £281 million mainly due to settlement of a number of tax issues relating to prior years.

 

The Group has recognised a deferred tax asset at 30 September 2010 of £5,907 million, of which £3,741 million relates to carried forward trading losses in the UK.  Under UK tax legislation, these UK losses can be carried forward indefinitely to be utilised against profits arising in the future. The Group has considered the carrying value of this asset as at 30 September 2010 and concluded that it is recoverable based on base case future profit projections.

 



 

Notes to pro forma results (continued)

 

6. Profit attributable to minority interests

 


Quarter ended


 

Nine months ended


30 September 

2010 

30 June 

2010 

30 September 

2009 


30 September 

2010 

30 September 

2009 


£m 

£m 

£m 


£m 

£m 








Trust preferred securities


10 

47 

Investment in Bank of China


359 

Sempra

26 

20 

35 


46 

179 

RBS N.V.

(2)


(1)

Other


17 

12 








Profit attributable to minority interests

30 

30 

47 


72 

601 

 

 

7. Profit attributable to preference shareholders and paid-in equity holders

 


Quarter ended


 

Nine months ended


30 September 

2010 

30 June 

2010 

30 September 

2009 


30 September 

2010 

30 September 

2009 


£m 

£m 

£m 


£m 

£m 








Preference shareholders







Non-cumulative preference shares of US$0.01

100 


105 

279 

Non-cumulative preference shares of €0.01

81 


138 

Non-cumulative preference shares of £1







- issued to UK Financial Investments Limited (1)


274 

- other

61 


61 








Paid-in equity holders







Interest on securities classified as equity, net

  of tax

19 


19 

39 









19 

245 


124 

791 

 

Note:

(1)

Includes £50 million redemption premium on repayment of preference shares.

 



 

Notes to pro forma results (continued)

 

8. Earnings per ordinary and B share

 

Earnings per ordinary and B share have been calculated based on the following:

 


Quarter ended


Nine months ended


30 September 

2010 

30 June 

2010 

30 September 

2009 


30 September 

2010 

30 September 

2009 


£m 

£m 

£m 


£m 

£m 








Earnings







(Loss)/profit from continuing operations

  attributable to ordinary and B shareholders

(1,148)

283 

(1,793)


(1,109)

(2,777)

Gain on redemption of preference shares and paid-in equity

610 


610 

200 








Adjusted (loss)/profit from continuing

  operations attributable to ordinary and B

  shareholders

(1,148)

893 

(1,793)


(499)

(2,577)








Profit/(loss) from discontinued operations

  attributable to ordinary and B shareholders

(26)

(7)


(28)

(65)








Ordinary shares in issue during the period

  (millions)

56,164 

56,413 

56,230 


56,271 

49,899 

B shares in issue during the period (millions)

51,000 

51,000 


51,000 








Weighted average number of ordinary and B shares in issue during the

  period (millions)

107,164 

107,413 

56,230 


107,271 

49,899 








Basic (loss)/earnings per ordinary and B share from continuing operations

(1.1p)

0.8p 

(3.2p)


(0.5p)

(5.2p)

Amortisation of purchased intangible assets

0.1p 

0.1p 

0.1p 


0.2p 

0.3p 

Integration and restructuring costs

0.2p 

0.2p 

0.4p 


0.5p 

1.5p 

Gain on redemption of own debt (1)

(1.0p)


(1.0p)

(7.2p)

Strategic disposals

0.4p 

0.3p 


0.3p 

(0.6p)

Bonus tax


0.1p 

Asset Protection Scheme credit default swap - fair value changes

0.6p 

(0.3p)


0.6p 

Write-down of goodwill and other intangible

  assets


0.6p 








Adjusted (loss)/earnings per ordinary and B share from continuing operations

(0.2p)

0.2p 

(2.4p)


0.2p 

(10.6p)

Loss from Non-Core attributable to

  ordinary and B shareholders

0.2p 

3.1p 


1.1p 

20.3p 








Core adjusted (loss)/earnings per ordinary and B share from continuing operations

(0.2p)

0.4p 

0.7p 


1.3p 

9.7p 

Core impairment losses

0.3p 

1.6p 


0.8p 

5.4p 








Pre-impairment Core adjusted

  (loss)/earnings per ordinary and B share

(0.2p)

0.7p 

2.3p 


2.1p 

15.1p 








Basic loss per ordinary and B share from discontinued operations


(0.1p)

 

Note:

(1)

Gain on redemption of own debt includes gains on redemption of instruments classified as equity which are included in basic earnings.



 

Notes to pro forma results (continued)

 

9. Segmental analysis

 

Analysis of divisional operating profit/(loss)

The following tables provide an analysis of the divisional profit/(loss) for the quarters ended 30 September 2010, 30 June 2010 and for the nine month period ended 30 September 2010, by main income statement captions. The pro forma divisional income statements on pages 24 to 56 reflect certain presentational reallocations as described in the notes below.  These do not affect the overall operating profit/(loss).

 


Net 

interest 

 income 

Non- 

interest 

 income 

 

Total 

 income 

 

Operating 

 expenses 

 Insurance 

net claims 

 

Impairment 

 losses 

 

Operating 

 profit/(loss)

Quarter ended 30 September 2010

£m 

£m 

£m 

£m 

£m 

£m 

£m 









UK Retail (1)

1,056 

376 

1,432 

(733)

(50)

(251)

398 

UK Corporate

662 

324 

986 

(406)

(158)

422 

Wealth

156 

108 

264 

(189)

(1)

74 

Global Transaction Services

257 

411 

668 

(356)

(3)

309 

Ulster Bank

192 

52 

244 

(134)

(286)

(176)

US Retail & Commercial

480 

271 

751 

(553)

(125)

73 

Global Banking & Markets (2)

309 

1,245 

1,554 

(1,005)

40 

589 

RBS Insurance (3)

92 

999 

1,091 

(175)

(949)

(33)

Central items

(154)

193 

39 

34 

76 









Core (before fair value of own

  debt)

3,050 

3,979 

7,029 

(3,517)

(998)

(782)

1,732 

Fair value of own debt (4)

(858)

(858)

(858)









Core

3,050 

3,121 

6,171 

(3,517)

(998)

(782)

874 

Non-Core (5)

354 

534 

888 

(579)

(144)

(1,171)

(1,006)










3,404 

3,655 

7,059 

(4,096)

(1,142)

(1,953)

(132)

Amortisation of purchased intangible assets

(123)

(123)

Integration and restructuring costs

(311)

(311)

Strategic disposals

27 

27 

27 

Bonus tax

(15)

(15)

Asset Protection Scheme credit

  default swap - fair value changes

(825)

(825)

(825)










3,404 

2,857 

6,261 

(4,545)

(1,142)

(1,953)

(1,379)

RFS Holdings minority interest

(182)

(175)

(6)

(181)









Total statutory

3,411 

2,675 

6,086 

(4,551)

(1,142)

(1,953)

(1,560)

 

Notes:

(1)

Reallocation of netting of bancassurance claims of £50 million from non-interest income.

(2)

Reallocation of £8 million between net interest income and non-interest income in respect of funding costs of rental assets.

(3)

Total income includes £75 million investment income of which £55 million is included in net interest income and £20 million in non-interest income. Reallocation of £37 million between non-interest income and net interest income in respect of instalment income.

(4)

Comprises £598 million in relation to Global Banking & Markets and £260 million in relation to Group Centre.

(5)

Reallocation of £84 million between net interest income and non-interest income in respect of funding costs of rental assets, £79 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £5 million.

 

 

 



 

Notes to pro forma results (continued)

 

9. Segmental analysis (continued)

 

Analysis of divisional operating profit/(loss) (continued)

 


Net 

interest 

 income 

Non- 

interest 

 income 

 

Total 

 income 

 

Operating 

 expenses 

Insurance 

net claims 

 

Impairment 

 losses 

 

Operating 

 profit/(loss)

Quarter ended 30 June 2010

£m 

£m 

£m 

£m 

£m 

£m 

£m 









UK Retail (1)

1,001 

294 

1,295 

(744)

25 

(300)

276 

UK Corporate

647 

340 

987 

(399)

(198)

390 

Wealth

150 

116 

266 

(178)

(7)

81 

Global Transaction Services

237 

411 

648 

(366)

(3)

279 

Ulster Bank

194 

53 

247 

(143)

(281)

(177)

US Retail & Commercial

502 

275 

777 

(504)

(144)

129 

Global Banking & Markets (2)

320 

1,627 

1,947 

(1,033)

(164)

750 

RBS Insurance (3)

90 

1,015 

1,105 

(176)

(1,132)

(203)

Central items

71 

(53)

18 

32 

(1)

49 









Core (before fair value of own

  debt)

3,212 

4,078 

7,290 

(3,511)

(1,108)

(1,097)

1,574 

Fair value of own debt (4)

619 

619 

619 









Core

3,212 

4,697 

7,909 

(3,511)

(1,108)

(1,097)

2,193 

Non-Core (5)

472 

401 

873 

(592)

(215)

(1,390)

(1,324)










3,684 

5,098 

8,782 

(4,103)

(1,323)

(2,487)

869 

Amortisation of purchased  

  intangible assets

(85)

(85)

Integration and restructuring costs

(254)

(254)

Gain on redemption of own debt

553 

553 

553 

Strategic disposals

(411)

(411)

(411)

Bonus tax

(15)

(15)

Asset Protection Scheme credit

  default swap - fair value changes

500 

500 

500 










3,684 

5,740 

9,424 

(4,457)

(1,323)

(2,487)

1,157

RFS Holdings minority interest

(8)

21 

13 

17 









Total statutory

3,676 

5,761 

9,437 

(4,453)

(1,323)

(2,487)

1,174 

 

Notes:

(1)

Reallocation of netting of bancassurance claims of £25 million from non-interest income.

(2)

Reallocation of £15 million between net interest income and non-interest income in respect of funding costs of rental assets, £9 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £6 million.

(3)

Total income includes £74 million investment income of which £55 million is included in net interest income and £19 million in non-interest income. Reallocation of £35 million between non-interest income and net interest income in respect of instalment income.

(4)

Comprises £331 million in relation to Global Banking & Markets and £288 million in relation to Group Centre.

(5)

Reallocation of £62 million between net interest income and non-interest income in respect of funding costs of rental assets, £78 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £16 million.

 

 

 

 

 

 

 



 

Notes to pro forma results (continued)

 

9. Segmental analysis (continued)

 

Analysis of divisional operating profit/(loss) (continued)

 


Net 

interest 

 income 

Non- 

interest 

 income 

 

Total 

 income 

 

Operating 

 expenses 

Insurance 

net 

 claims 

 

Impairment 

 losses 

 

Operating 

 profit/(loss)

Nine months ended 30 September 2010

£m 

£m 

£m 

£m 

£m 

£m 

£m 









UK Retail (1)

2,990 

1,014 

4,004 

(2,198)

(54)

(938)

814 

UK Corporate

1,919 

993 

2,912 

(1,240)

(542)

1,130 

Wealth

449 

336 

785 

(556)

(12)

217 

Global Transaction Services

711 

1,212 

1,923 

(1,096)

(6)

821 

Ulster Bank

574 

158 

732 

(437)

(785)

(490)

US Retail & Commercial

1,450 

798 

2,248 

(1,594)

(412)

242 

Global Banking & Markets (2)

1,001 

5,324 

6,325 

(3,332)

(156)

2,837 

RBS Insurance (3)

271 

3,024 

3,295 

(526)

(3,055)

(286)

Central items

(68)

352 

284 

177 

462 









Core (before fair value of own debt)

9,297 

13,211 

22,508 

(10,802)

(3,109)

(2,850)

5,747 

Fair value of own debt (4)

(408)

(408)

(408)









Core

9,297 

12,803 

22,100 

(10,802)

(3,109)

(2,850)

5,339 

Non-Core (5)

1,325 

1,370 

2,695 

(1,827)

(492)

(4,265)

(3,889)










10,622 

14,173 

24,795 

(12,629)

(3,601)

(7,115)

1,450 

Amortisation of purchased  

  intangible assets

(273)

(273)

Integration and restructuring costs

(733)

(733)

Gain on redemption of own debt

553 

553 

553 

Strategic disposals

(331)

(331)

(331)

Bonus tax

(84)

(84)

Asset Protection Scheme credit

  default swap - fair value changes

(825)

(825)

(825)










10,622 

13,570 

24,192 

(13,719)

(3,601)

(7,115)

(243)

RFS Holdings minority interest

(153)

(146)

(2)

(148)









Total statutory

10,629 

13,417 

24,046 

(13,721)

(3,601)

(7,115)

(391)

 

Notes:

(1)

Reallocation of netting of bancassurance claims of £54 million from non-interest income.

(2)

Reallocation of £30 million between net interest income and non-interest income in respect of funding costs of rental assets, £26 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £4 million.

(3)

Total income includes £200 million investment income, £164 million included in net interest income and £36 million in non-interest income. Reallocation of £107 million between non-interest income and net interest income in respect of instalment income.

(4)

Comprises £299 million in relation to Global Banking & Markets and £109 million in relation to Group Centre.

(5)

Reallocation of £215 million between net interest income and non-interest income in respect of funding assets, £226 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £11 million.



 

Notes to pro forma results (continued) 

 

10. Financial instruments

 

Classification

The following tables analyse the Group's financial assets and liabilities in accordance with the categories of financial instruments in IAS 39: held-for-trading (HFT), designated as at fair value through profit or loss (DFV), available-for-sale (AFS), loans and receivables (LAR) and other financial instruments. Assets and liabilities outside the scope of IAS 39 are shown separately.


HFT 

DFV 

AFS

LAR

Other

financial instruments

Non

financial

instruments

Finance 

leases 

Total 

30 September 2010

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 









Cash and balances at central banks

61,416 

61,416 

Loans and advances to banks









- net loans and advances

26,044 

34,286 

60,330 

- reverse repos

43,536 

4,871 

48,407 

Loans and advances to customers









- net loans and advances

27,987 

1,478 

487,415 

11,169 

528,049 

- reverse repos

32,907 

11,596 

44,503 

Debt securities

105,390 

603 

113,151 

7,266 

226,410 

Equity shares

18,007 

1,611 

2,137 

21,755 

Settlement balances

22,874 

22,874 

Derivatives (1)

548,805 

548,805 

Intangible assets

14,369 

14,369 

Property, plant and equipment

17,398 

17,398 

Deferred taxation

5,907 

5,907 

Prepayments, accrued income and other assets

1,209 

10,694 

11,903 

Assets of disposal groups

16,537 

16,537 










Total assets

802,676 

3,692 

115,288 

630,933 

64,905 

11,169 

1,628,663 










Deposits by banks









- bank deposits

39,781 

40,405 

80,186 

- repos

24,871 

16,594 

41,465 

Customer accounts









- customer deposits

11,220 

4,494 

404,925 

420,639 

- repos

59,295 

27,992 

87,287 

Debt securities in issue

6,279 

44,141 

184,663 

235,083 

Settlement balances

20,628 

20,628 

Short positions

44,004 

44,004 

Derivatives (1)

543,397 

543,397 

Accruals, deferred income and other liabilities

1,737 

21,449 

464 

23,650 

Retirement benefit liabilities

2,606 

2,606 

Deferred taxation

2,237 

2,237 

Insurance liabilities

6,782 

6,782 

Subordinated liabilities

1,152 

26,738 

27,890 

Liabilities of disposal groups

15,667 

15,667 










Total liabilities

728,847 

49,787 

723,682 

48,741 

464 

1,551,521 










Equity








77,142 

















1,628,663 

 

Note:

(1)

Held-for-trading derivatives include hedging derivatives.



 

Notes to pro forma results(continued)

 

10. Financial instruments (continued)

 

Classification (continued)

 


HFT 

DFV 

AFS 

LAR 

Other

financial instruments

Non

financial

instruments

Finance leases

Total 

At 30 June 2010

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 










Cash and balances at central banks

29,591 

29,591 

Loans and advances to banks









- net loans and advances

22,966 

31,505 

54,471 

- reverse repos

43,787 

3,876 

47,663 

Loans and advances to customers









- net loans and advances

21,236 

1,631 

504,541 

11,932 

539,340 

- reverse repos

27,655 

11,741 

39,396 

Debt securities

103,161 

619 

123,941 

8,539 

236,260 

Equity shares

13,768 

688 

2,870 

-  

17,326 

Settlement balances

20,718 

20,718 

Derivatives (1)

522,871 

522,871 

Intangible assets

14,482 

14,482 

Property, plant and equipment

17,608 

17,608 

Deferred taxation

5,841 

5,841 

Prepayments, accrued income and other assets

1,175 

12,455 

13,630 

Assets of disposal groups

21,656 

21,656 










Total assets

755,444 

2,938 

126,811 

611,686 

72,042 

11,932 

1,580,853 










Deposits by banks









- bank deposits

37,270 

59,344 

96,614 

- repos

24,594 

19,571 

44,165 

Customer accounts









- customer deposits

12,268 

4,037 

404,585 

420,890 

- repos

45,869 

24,786 

70,655 

Debt securities in issue

5,703 

39,947 

171,667 

217,317 

Settlement balances

19,730 

19,730 

Short positions

42,994 

42,994 

Derivatives (1)

508,966 

508,966 

Accruals, deferred income and

  other liabilities

1,898 

22,456 

488 

24,842 

Retirement benefit liabilities

2,600 

2,600 

Deferred taxation

2,126 

2,126 

Insurance liabilities

6,521 

6,521 

Subordinated liabilities

1,107 

26,416 

27,523 

Liabilities of disposal groups

16,999 

16,999 










Total liabilities

677,664 

45,091 

727,997 

50,702 

488 

1,501,942 










Equity








78,911 


















1,580,853 

 

Note:

(1)

Held-for-trading derivatives include hedging derivatives.

 



 

Notes to pro forma results(continued)

 

10. Financial instruments (continued)

 

Classification (continued)

 


HFT 

DFV 

AFS 

LAR 

Other 

financial 

 instruments 

Non 

 financial 

instruments 

 

Finance 

leases 

Total 

At 31 December 2009

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 










Cash and balances at central banks

- 

- 

- 

51,548 

- 

- 

51,548 

Loans and advances to banks









- net loans and advances

18,563 

30,214 

-

48,777 

- reverse repos

26,886 

8,211 

35,097 

Loans and advances to customers









- net loans and advances

15,371 

1,981 

524,204 

13,098 

554,654 

- reverse repos

26,313 

14,727 

41,040 

Debt securities

111,413 

2,429 

125,382 

9,871 

- 

- 

249,095 

Equity shares

 11,318 

2,083 

2,559 

- 

- 

- 

15,960 

Settlement balances

- 

- 

- 

12,024 

- 

- 

12,024 

Derivatives (1)

438,199 

- 

- 

- 

- 

- 

438,199 

Intangible assets

- 

- 

- 

- 

- 

14,786 

14,786 

Property, plant and equipment

- 

- 

- 

- 

- 

17,773 

17,773 

Deferred taxation

- 

- 

- 

- 

- 

6,492 

6,492 

Prepayments, accrued income and

  other assets

- 

- 

- 

1,421 

- 

17,183 

18,604 

Assets of disposal groups

- 

- 

- 

- 

- 

18,432 

18,432 










Total assets

648,063 

6,493 

127,941 

652,220 

74,666 

13,098 

1,522,481 










Deposits by banks









- bank deposits

32,647 

82,995 

115,642 

- repos

20,962 

17,044 

38,006 

Customer accounts









- customer deposits

11,217 

5,256 

397,778 

414,251 

- repos

41,520 

26,833 

68,353 

Debt securities in issue

3,925 

41,444 

- 

- 

200,960 

- 

246,329 

Settlement balances

- 

- 

- 

10,412 

- 

10,412 

Short positions

40,463 

40,463 

Derivatives (1)

421,534 

- 

- 

- 

- 

- 

421,534 

Accruals, deferred income and

  other liabilities

- 

- 

- 

- 

1,889 

22,269 

466 

24,624 

Retirement benefit liabilities

- 

- 

- 

- 

- 

2,715 

2,715 

Deferred taxation

- 

- 

- 

- 

- 

2,161 

2,161 

Insurance liabilities

- 

- 

- 

- 

- 

7,633 

7,633 

Subordinated liabilities

- 

1,277 

- 

- 

30,261 

- 

31,538 

Liabilities of disposal groups

- 

- 

- 

- 

- 

18,857 

18,857 










Total liabilities

572,268 

47,977 

768,172 

53,635 

466 

1,442,518 










Equity








79,963 


















1,522,481 

 

Note:

(1)

Held-for-trading derivatives include hedging derivatives.



 

Notes to pro forma results (continued)

 

10. Financial instruments (continued)

 

Reclassification of financial instruments

As permitted by amended IAS 39, the Group reclassified certain financial assets from the HFT and AFS categories into the LAR category and from the HFT category into the AFS category in 2008 and 2009.  There were no reclassifications in the nine months ended 30 September 2010.  The following tables detail the effect of the reclassifications and the balance sheet values of the assets.

 


Reduction in profit for the quarter ended 

30 September 2010 as a result of 

reclassifications 


£m 



From HFT to:


AFS

81 

LAR

162 




243 

 

 


30 September 2010


30 June 2010


31 December 2009


Carrying 

 value 

Fair value 


Carrying 

 value 

Fair value 


Carrying 

 value 

Fair value 


£m 

£m 


£m 

£m 


£m 

£m 










From HFT to:









AFS

6,843 

6,843 


7,343 

7,343 


7,629 

7,629 

LAR

9,703 

8,131 


10,596 

8,861 


12,933 

10,644 











16,546 

14,974 


17,939 

16,204 


20,562 

18,273 

From AFS to:









LAR

449 

405 


969 

808 


869 

745 











16,995 

15,379 


18,908 

17,012 


21,431 

19,018 

 

During the quarter ended 30 September 2010, the balance sheet value of reclassified assets decreased by £1.9 billion, primarily due to disposals and repayments across a range of securities and loans.

 

For assets reclassified from HFT to AFS, net unrealised losses recorded in equity at 30 September 2010 were £0.3 billion (30 June 2010 - £0.4 billion; 31 December 2009 - £0.6 billion).



 

Notes to pro forma results (continued)

 

10. Financial instruments (continued)

 

Financial instruments carried at fair value

Refer to Note 11 Financial instruments of the 2009 Annual Report and Accounts for valuation techniques. Certain aspects relating to the valuation of financial instruments carried at fair value are discussed below.

 

Valuation reserves

When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity, credit risk and future administrative costs.

 

Valuation reserves and adjustments comprise:

 


30 September 

2010 

30 June 

 2010 

31 March 

2010 

31 December 

2009 


£m 

£m 

£m 

£m 






Credit valuation adjustments:





Monoline insurers

2,678 

3,599 

3,870 

3,796 

Credit derivative product companies

622 

791 

465 

499 

Other counterparties

1,937 

1,916 

1,737 

1,588 







5,237 

6,306 

6,072 

5,883 






Bid-offer and liquidity reserves

3,092 

2,826 

2,965 

2,814 







8,329 

9,132 

9,037 

8,697 






Debit valuation adjustments ('own credit'):





Debt securities in issue

(1,786)

(2,604)

(2,151)

(2,331)

Derivatives

(485)

(551)

(475)

(467)






Total debit valuation adjustments

(2,271)

(3,155)

(2,626)

(2,798)

 

Credit valuation adjustments (CVA) represent an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures. CVA is discussed in Risk and capital management - Other risk exposures: Credit valuation adjustments on page 123. Bid-offer and liquidity reserves and own credit is discussed on pages 78 and 79 below.

 



 

Notes to pro forma results (continued)

 

10. Financial instruments (continued)

 

Valuation reserves (continued)

 

Bid-offer and liquidity reserves

Fair value positions are adjusted to bid or offer levels, by marking individual cash based positions directly to bid or offer or by taking bid-offer reserves calculated on a portfolio basis for derivatives exposures.

 

The bid-offer approach is based on current market spreads and standard market bucketing of risk. Risk data are used as the primary sources of information within bid-offer calculations and are aggregated when they are more granular than market standard buckets.

 

Bid-offer adjustments for each risk factor are determined by aggregating similar risk exposures arising on different products. Additional basis bid-offer reserves are taken where these are charged in the market. Risk associated with non identical underlying exposures is not netted down unless there is evidence that the cost of closing the combined risk exposure is less than the cost of closing on an individual basis.

 

Bid-offer spreads vary by maturity and risk type to reflect different spreads in the market. For positions where there is no observable quote, the bid-offer spreads are widened in comparison to proxies to reflect reduced liquidity or observability. Bid-offer methodologies also incorporate liquidity triggers whereby wider spreads are applied to risks above pre-defined thresholds.

 

Netting is applied across risk buckets where there is market evidence to support this. For example calendar netting and cross strike netting effects are taken into account where such trades occur regularly within the market. Netting will also apply where long and short risk in two different risk buckets can be closed out in a single market transaction at less cost than by way of two separate transactions (closing out the individual bucketed risk in isolation).

 

Vanilla risk on exotic products is typically reserved as part of the overall portfolio based calculation e.g. delta and vega risk is 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.

 

Product related risks such as correlation risk attract specific bid-offer reserves. Additional reserves are provided for exotic products to ensure overall reserves match market close-out costs. These market close-out costs inherently incorporate risk decay and cross-effects which are unlikely to be adequately reflected in the static hedge based on vanilla instruments.

 

Where there is limited bid-offer information for a product a conservative approach is taken, taking into account pricing approach and risk management strategy.

 



 

Notes to pro forma results (continued) 

 

10. Financial instruments (continued)

 

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. The categories of financial liabilities on which own credit spread adjustments are made are issued debt, 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.

 

The own credit adjustment does not alter cash flows, is not used for performance management, and is disregarded for regulatory capital reporting processes.

 

For issued debt and structured notes, this adjustment is based on independent quotes from market participants for the debt issuance spreads above average inter-bank rates, (at a range of tenors) which the market would demand when purchasing new senior or subordinated debt issuances from the Group.  Where necessary, these quotes are interpolated using a curve shape derived from credit default swap prices. 

 

The fair value of the Group's derivative financial liabilities has also been adjusted to reflect the Group's own credit risk. The adjustment takes into account collateral posted by the Group and the effects of master netting agreements.

 

The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserves are stated by the conversion of underlying currency balances at spot rates for each period, however the income statement includes intra-period foreign exchange sell-offs.

 

The effect of change in credit spreads could reverse in future periods provided the liability is not repaid at a premium or a discount.

 

 



Notes to pro forma results (continued)

 

10. Financial instruments (continued)

 

Valuation hierarchy


30 September 2010


30 June 2010


31 December 2009


Total 

Level 1 

Level 2 

Level 3 


Total 

Level 1 

Level 2 

Level 3 


Total 

Level 1 

Level 2 

Level 3 

Assets

£bn 

£bn 

£bn 

£bn 


£bn 

£bn 

£bn 

£bn 


£bn 

£bn 

£bn 

£bn 
















Loans and advances to

  banks















- reverse repos

43.5 

43.5 


43.8 

43.8 


26.9 

26.9 

- collateral

25.1 

25.1 


22.3 

22.3 


18.4 

18.4 

- other

1.0 

1.0 


0.7 

0.7 


0.1 

0.1 

















69.6 

69.6 


66.8 

66.8 


45.4 

45.4 
















Loans and advances to

  customers















- reverse repos

32.9 

32.9 


27.7 

27.7 


26.3 

26.3 

- collateral

21.7 

21.7 


15.7 

15.7 


9.9 

9.9 

- other

7.8 

6.9 

0.9 


7.1 

5.8 

1.3 


7.5 

6.4 

1.1 

















62.4 

61.5 

0.9 


50.5 

49.2 

1.3 


43.7 

42.6 

1.1 
















Debt securities















- government

132.5 

118.5 

14.0 


132.7 

119.0 

13.7 


134.1 

118.2 

15.9 

- RMBS (2)

45.1 

44.6 

0.5 


48.6 

 - 

48.1 

0.5 


57.1 

56.6 

0.5 

- CMBS (3)

4.0 

3.8 

0.2 


4.6 

4.1 

0.5 


4.1 

4.0 

0.1 

- CDOs (4)

2.8 

0.9 

1.9 


3.8 

0.9 

2.9 


3.6 

2.6 

1.0 

- CLOs (5)

6.0 

4.2 

1.8 


9.0 

7.7 

1.3 


8.8 

8.0 

0.8 

- other ABS (6)

5.6 

4.2 

1.4 


5.6 

4.0 

1.6 


6.1 

5.2 

0.9 

- corporate

10.4 

9.6 

0.8 


9.4 

 - 

8.7 

0.7 


10.5 

9.9 

0.6 

- other (7)

12.7 

0.1 

12.4 

0.2 


14.0 

13.8 

0.2 


14.9 

14.7 

0.2 

















219.1 

118.6 

93.7 

6.8 


227.7 

119.0 

101.0 

7.7 


239.2 

118.2 

116.9 

4.1 
















Equity shares

21.8 

17.6 

2.2 

2.0 


17.3 

13.1 

2.4 

1.8 


16.0 

12.2 

2.5 

1.3 
















Derivatives















- foreign exchange

89.6 

0.1 

89.4 

0.1 


85.1 

85.0 

0.1 


68.3 

68.1 

0.2 

- interest rate

422.1 

0.1 

420.3 

1.7 


392.8 

0.2 

390.7 

1.9 


321.5 

0.3 

319.7 

1.5 

- equities and commodities

6.3 

6.1 

0.2 


5.9 

0.1 

5.8 


6.7 

0.3 

6.1 

0.3 

- credit - APS (8)

0.6 

0.6 


1.4 

1.4 


1.4 

1.4 

- credit - other

30.2 

26.9 

3.3 


37.7 

33.4 

4.3 


40.3 

0.1 

37.2 

3.0 

















548.8 

0.2 

542.7 

5.9 


522.9 

0.3 

514.9 

7.7 


438.2 

0.7 

431.1 

6.4 
















Total assets

921.7 

136.4 

769.7 

15.6 


885.2 

132.4 

734.3 

18.5 


782.5 

131.1 

638.5 

12.9 
















Of which classified as AFS debt securities















- government

60.5 

54.0 

6.5 


66.2 

59.6 

6.6 


64.9 

58.3 

6.6 

- RMBS (2)

30.3 

30.1 

0.2 


34.1 

33.9 

0.2 


37.2 

37.0 

0.2 

- CMBS (3)

1.4 

1.4 


1.5 

1.5 


1.6 

1.6 

- CDOs (4)

1.9 

0.5 

1.4 


2.1 

0.6 

1.5 


1.6 

1.2 

0.4 

- CLOs (5)

5.0 

3.7 

1.3 


5.7 

5.0 

0.7 


5.5 

5.4 

0.1 

- other ABS (6)

4.4 

3.2 

1.2 


4.3 

3.0 

1.3 


4.6 

4.0 

0.6 

- corporate

2.6 

2.6 


2.3 

2.3 


2.5 

2.5 

- other (7)

7.1 

0.1 

7.0 


7.7 

7.7 


7.5 

7.5 

















113.2 

54.1 

55.0 

4.1 


123.9 

59.6 

60.6 

3.7 


125.4 

58.3 

65.8 

1.3 

Equity shares

2.1 

0.3 

1.3 

0.5 


2.9 

0.3 

1.5 

1.1 


2.6 

0.3 

1.6 

0.7 

















115.3 

54.4 

56.3 

4.6 


126.8 

59.9 

62.1 

4.8 


128.0 

58.6 

67.4 

2.0 

For notes to this table refer to page 81.



 

Notes to pro forma results (continued)

 

10. Financial instruments (continued)

 

Valuation hierarchy (continued)

 


30 September 2010



31 December 2009


Total 

Level 1 

Level 2 

Level 3 


Total 

Level 1 

Level 2 

Level 3 


Total 

Level 1 

Level 2 

Level 3 

Liabilities

£bn 

£bn 

£bn 

£bn 


£bn 

£bn 

£bn 

£bn 


£bn 

£bn 

£bn 

£bn 
















Deposits by banks















- repos

24.9 

24.9 


24.6 

24.6 


21.0 

21.0 

- collateral

36.8 

36.8 


33.6 

33.6 


28.5 

28.5 

- other

3.0 

3.0 


3.7 

3.7 


4.1 

4.1 

















64.7 

64.7 


61.9 

61.9 


53.6 

53.6 

Customer accounts















-  repos

59.3 

59.3 


45.8 

45.8 


41.5 

41.5 

- collateral

9.1 

9.1 


9.3 

9.3 


9.0 

9.0 

- other

6.6 

6.6 


7.0 

6.9 

0.1 


7.5 

7.4 

0.1 

















75.0 

75.0 


62.1 

62.0 

0.1 


58.0 

57.9 

0.1 

Debt securities in issue

50.4 

48.9 

1.5 


45.7 

44.4 

1.3 


45.4 

43.1 

2.3 
















Short positions

44.0 

34.0 

9.3 

0.7 


43.0 

31.7 

10.2 

1.1 


40.5 

27.1 

13.2 

0.2 

Derivatives















- foreign exchange

98.4 

0.1 

98.0 

0.3 


88.7 

88.6 

0.1 


63.6 

 63.6 

- interest rate

407.5 

0.1 

406.8 

0.6 


377.5 

0.4 

376.2 

0.9 


309.3 

0.1 

308.4 

0.8 

- equities and

  commodities

9.7 

9.5 

0.2 


9.0 

8.9 

0.1 


9.5 

0.8 

8.5 

0.2 

- credit - other

27.8 

27.4 

0.4 


33.8 

33.3 

0.5 


39.1 

38.2 

0.9 

















543.4 

0.2 

541.7 

1.5 


509.0 

0.4 

507.0 

1.6 


421.5 

0.9 

418.7 

1.9 
















Other

1.1 

1.1 


1.1 

1.1 


1.3 

1.3 
















Total liabilities

778.6 

34.2 

740.7 

3.7 


722.8 

32.1 

686.6 

4.1 


620.3 

28.0 

587.8 

4.5 

 

Notes:

(1)

For details on levels 1, 2 and 3 refer to Note 11 - Financial instruments of the 2009 Annual Report and Accounts.

(2)

Residential mortgage-backed securities.

(3)

Commercial mortgage-backed securities.

(4)

Collateralised debt obligations.   

(5)

Collateralised loan obligation.

(6)

Asset-backed securities.

(7)

Primarily includes debt securities issued by banks and building societies.

(8)

Asset Protection Scheme.

 

 



 

Notes to pro forma results (continued)

 

10. Financial instruments (continued)

 

Valuation hierarchy (continued)

 

Key points

·

Total assets carried at fair value increased by £36.5 billion in the quarter to £921.7 billion at 30 September 2010, principally reflecting an increase in derivatives of £25.9 billion, collateral of £8.8 billion, reverse repos of £4.9 billion, partially offset by a decrease in debt securities of £8.6 billion.



·

Total liabilities carried at fair value were up by £55.8 billion, with increases in derivatives of £34.4 billion, repos of £13.8 billion, debt securities in issue of £4.7 billion and collateral of £3.0 billion.



·

Level 3 assets represented 1.7% (30 June 2010 - 2.1%; 31 December 2009 - 1.6%) of total assets carried at fair value and decreased by £2.9 billion to £15.6 billion primarily due to disposals and tightening credit spreads.



·

Level 3 liabilities decreased by £0.4 billion, mainly reflecting the impact of tighter credit spreads on short positions.



·

The favourable and unfavourable effects of reasonably possible alternative assumptions on financial instruments carried at fair value were £3.1 billion and £3.0 billion respectively of which £1.2 billion and £1.5 billion related to the APS credit derivative. These sensitivities are not indicative of the total potential effect on the income statement or other comprehensive income.

 



 

Notes to pro forma results (continued)

 

11. Debt securities

 


Central and local government

Banks and 

 building 

 societies 

ABS (2)

Corporate 

Other 

Total 


UK 

US 

Other 

Measurement classification

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 










30 September 2010









Held-for-trading

5,302 

17,164 

49,204 

4,884 

20,475 

7,733 

628 

105,390 

DFV (1)

353 

227 

18 

603 

Available-for-sale

9,511 

17,604 

33,323 

6,910 

42,923 

2,654 

226 

113,151 

Loans and receivables

11 

12 

6,387 

759 

97 

7,266 











14,825 

34,768 

82,880 

11,809 

70,012 

11,164 

952 

226,410 










30 June 2010









Held-for-trading

8,993 

16,642 

40,589 

5,471 

23,614 

7,077 

775 

103,161 

DFV (1)

357 

234 

24 

619 

Available-for-sale

11,584 

17,194 

37,459 

7,371 

47,709 

2,324 

300 

123,941 

Loans and receivables

11 

18 

7,148 

1,274 

88 

8,539 











20,589 

33,836 

78,405 

12,863 

78,705 

10,699 

1,163 

236,260 










31 December 2009









Held-for-trading

8,128 

10,427 

50,150 

6,103 

28,820 

6,892 

893 

111,413 

DFV (1)

122 

385 

418 

394 

1,087 

20 

2,429 

Available-for-sale

18,350 

12,789 

33,727 

7,472 

50,464 

2,550 

30 

125,382 

Loans and receivables

7,924 

1,853 

93 

9,871 











26,601 

23,219 

84,262 

13,993 

87,602 

12,382 

1,036 

249,095 

 

Notes

(1)

Designated as at fair value through profit or loss.

(2)

Asset-backed securities.

 

See Risk and capital management section for information on ratings. 



 

Notes to pro forma results (continued)

 

12. Derivatives

 


30 September 2010


30 June 2010


31 December 2009


Assets 

Liabilities 


Assets 

Liabilities 


Assets 

Liabilities 


£m 

£m 


£m 

£m 


£m 

£m 










Exchange rate contracts









Spot, forwards and futures

43,109 

45,986 


37,670 

38,402 


26,559 

24,763 

Currency swaps

31,816 

38,813 


28,232 

32,336 


25,221 

23,337 

Options purchased

14,603 


19,191 


16,572 

Options written

13,586 


17,921 


15,499 










Interest rate contracts









Interest rate swaps

345,631 

335,541 


324,978 

313,019 


263,902 

251,829 

Options purchased

74,395 


65,818 


55,471 

Options written

69,919 


62,766 


55,462 

Futures and forwards

2,151 

2,051 


2,033 

1,702 


2,088 

2,033 










Credit derivatives

30,810 

27,766 


38,981 

33,795 


41,748 

39,127 










Equity and commodity

  contracts

6,290 

9,735 


5,968 

9,025 


6,638 

9,484 











548,805 

543,397 


522,871 

508,966 


438,199 

421,534 

 

The Group enters into master netting agreements in respect of its derivative activities. These arrangements, which give the Group a legal right to set-off derivative assets and liabilities with the same counterparty, do not result in a net presentation in the Group's balance sheet for which IFRS requires an intention to settle net or to realise the asset and settle the liability simultaneously, as well as a legally enforceable right to set-off.  They are, however, effective in reducing the Group's credit exposure from derivative assets.  The Group has executed master netting agreements with the majority of its derivative counterparties resulting in a significant reduction in its net exposure to derivative assets. Of the £549 billion derivative assets shown above, £449 billion (30 June 2010 - £422 billion; 31 December 2009 - £359 billion) were subject to such agreements. Furthermore, the Group holds substantial collateral against this net derivative asset exposure, see Risk and capital management: Credit risk: Derivatives on page 106.

 



 

Notes to pro forma results (continued)

 

13. Available-for-sale financial assets

Available-for-sale financial assets are initially recognised at fair value plus directly related transaction costs and are subsequently measured at fair value with changes in fair value reported in shareholders' equity until disposal, at which stage the cumulative gain or loss is recognised in profit or loss.  When there is objective evidence that an available-for-sale financial asset is impaired, any decline in its fair value below original cost is removed from equity and recognised in profit or loss.

 

Impairment losses are recognised when there is objective evidence of impairment. The Group reviews its portfolios of available-for-sale financial assets for such evidence which includes: default or delinquency in interest or principal payments; significant financial difficulty of the issuer or obligor; and it becoming probable that the issuer will enter bankruptcy or other financial reorganisation. However, the disappearance of an active market because an entity's financial instruments are no longer publicly traded is not evidence of impairment. Furthermore, a downgrade of an entity's credit rating is not, of itself, evidence of impairment, although it may be evidence of impairment when considered with other available information.  A decline in the fair value of a financial asset below its cost or amortised cost is not necessarily evidence of impairment. Determining whether objective evidence of impairment exists requires the exercise of management judgment. The unrecognised losses on the Group's available- for-sale debt securities are concentrated in its portfolios of mortgage-backed securities. The losses reflect the widening of credit spreads as a result of the reduced market liquidity in these securities and the current uncertain macroeconomic outlook in the US and Europe. The underlying securities remain unimpaired.

 

During the third quarter of 2010 gains were realised by US Retail & Commercial (£215 million) and RBS N.V. (£216 million). The gain in US Retail & Commercial, which was part of its balance sheet restructuring exercise, was largely offset in the income statement by losses crystallised on the termination of swaps hedging fixed-rate funding related hedges. The gain in RBS N.V., which is included in Central items was offset by negative movements relating to IFRS volatility. Available-for-sale reserves at 30 September 2010 amounted to net losses of £1,242 million (30 June 2010 - net losses £1,459 million; 31 December 2009 - net losses £1,755 million), and the movements were as follows: 

 


Quarter 

 ended 

30 September 

2010 

Half year 

ended 

30 June 

2010 

Year 

ended 

31 December 

2009 

Available-for-sale reserves

£m 

£m 

£m 





At beginning of period

(1,459)

(1,755)

(3,561)

Unrealised gains in the period

680 

647 

1,202 

Realised (gains)/losses in the period

(408)

(127)

981 

Taxation

(55)

(208)

(377)

Recycled to profit or loss on disposal of businesses, net of £6 million tax

(16)





At end of period

(1,242)

(1,459)

(1,755)

 

The above excludes losses attributable to minority interests of £336 million in the year ended 31 December 2009.

 

Notes to pro forma results (continued)

 

14. Contingent liabilities and commitments

 


30 September 2010


30 June 2010


31 December 

2009 


Core 

Non-Core 

Total 


Core 

Non-Core 

Total 



£m 

£m 

£m 


£m 

£m 

£m 


£m 











Contingent liabilities










Guarantees and assets pledged as

  collateral security

35,334 

2,616 

37,950 


33,391 

2,529 

35,920 


36,579 

Other contingent liabilities

12,606 

376 

12,982 


12,503 

485 

12,988 


13,410 












47,940 

2,992 

50,932 


45,894 

3,014 

48,908 


49,989 











Commitments










Undrawn formal standby facilities,

  credit lines and other commitments

  to lend

240,560 

26,126 

266,686 


245,053 

25,478 

270,531 


289,135 

Other commitments

867 

2,637 

3,504 


2,084 

2,631 

4,715 


3,483 












241,427 

28,763 

270,190 


247,137 

28,109 

275,246 


292,618 











Total contingent liabilities and

  commitments

289,367 

31,755 

321,122 


293,031 

31,123 

324,154 


342,607 

 

Additional contingent liabilities arise in the normal course of the Group's business. It is not anticipated that any material loss will arise from these transactions.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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