Trading Statement

RNS Number : 4339W

Royal Bank of Scotland Group PLC

11 June 2008

 



THE ROYAL BANK OF SCOTLAND GROUP PLC 

Pre-close Trading Update 

11 June 2008

The Royal Bank of Scotland Group ('RBS') will be holding discussions with analysts and investors ahead of its close period for the half year ending 30 June 2008. This statement sets out the information that will be covered in those discussions.  

RBS confirms that it expects Group and divisional performance trends to continue to track the guidance provided in the Interim Management Statement of 22 April 2008. The operating performance of many of RBS's businesses since the beginning of 2008 remains good, though results have been held back by the effects of the continuing deterioration in credit markets.

Write-downs on credit market exposures, as discussed in detail in the Interim Management Statement, are expected to remain within the estimates indicated.  Overall, the Group's underlying results, excluding write-downs on credit market exposures, are expected to remain satisfactory. 

While the global economic outlook is placing strains on a number of business sectors, the Group's loan portfolio remains robust, with a continued reduction in UK personal sector impairment losses but increased US impairments, principally in a specific retail portfolio, as previously disclosed. Although there has been little change in current corporate and commercial credit metrics, we continue to monitor forward-looking indicators closely.

The integration of ABN AMRO remains on track. Good progress continues to be made, with both income benefits and cost savings slightly ahead of target. 

RBS confirms its previous guidance that at 30 June 2008 it expects its Tier 1 capital ratio to be in excess of 7.5% and its core Tier 1 capital ratio to be in excess of 5%, on a proportional consolidated basis.  At 31 December 2008 the Group's Tier 1 capital ratio, on the same basis, is expected to be in excess of 8% and its core Tier 1 ratio in excess of 6%.

Further unaudited pro forma financial information under the Group's revised divisional structure is set out in Appendix 1. This information covers operating results for the Group, including the results of the ABN AMRO businesses acquired by RBS, for the full years 2006 and 2007 and for the first half of 2007.  RBS will give a full update on progress with the ABN AMRO integration and on the Group's credit market exposures with its 2008 interim results on 8 August 2008. 

  Sir Fred Goodwin, Group Chief Executive, said:

'The trends which we have experienced so far in the second quarter are consistent with those referred to in our Interim Management Statement. Whilst we remain very much open for business, our risk appetite is tempered by a cautious stance in relation to short term economic factors and market conditions.' 

CONTACTS 

Sir Fred Goodwin	Group Chief Executive	020 7672 0008
Guy Whittaker	Group Finance Director	020 7672 0003
Richard O'Connor	Head of Investor Relations	020 7672 1758
For media enquiries
Andrew McLaughlin	Group Director, Communications	0131 626 3868 07786 111689
Carolyn McAdam	Group Head of Media Relations	0131 523 2055 07796 274968

Analysts' Conference Call

9.00 a.m., 11 June 2008

Dial in details:
International Dial In:	[phone]
UK Free Call:	0800 694 8082
USA Free Call:	1 866 966 8024
Netherlands Free Call:	0800 023 5072

This announcement contains forward-looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements concern or may affect future matters, such as RBS's future economic results, business plans and strategies, and are based upon the current expectations of the directors. They are subject to a number of risks and uncertainties that might cause actual results and events to differ materially from the expectations expressed in the forward-looking statements. Forward-looking statements include, without limitation, statements typically containing words such as 'intends', 'expects', 'anticipates', 'targets', 'plans', 'estimates' and words of similar import. Factors that could cause or contribute to differences in current expectations include, but are not limited to, legislative, fiscal and regulatory developments, competitive conditions, technological developments, exchange rate fluctuations and general economic conditions. These factors, risks and uncertainties are discussed in RBS's SEC filings, including, but not limited to, RBS's Reports on Form 6-K containing this announcement and certain sections of RBS's Annual Reports on Form 20-F. Information in this announcement of the price at which investments have been bought or sold in the past or the yield on investments cannot be relied upon as a guide to future performance. RBS assumes no responsibility to update any of the forward-looking statements contained in this announcement, whether as a result of new information, future events or otherwise, except to the extent legally required.

  APPENDIX I

Pro forma financial information for the Group under the revised divisional structure 

The unaudited pro forma financial information under the Group's revised divisional structure is shown below. These show the underlying performance of the Group including the results of the ABN AMRO businesses acquired by RBS. This information is being provided to give a better understanding of what the results of the operations might have looked like had the acquisition of ABN AMRO as well as the transfers of businesses to the other Consortium Banks occurred on 1 January 2006. 

The profit before amortisation of purchased intangible assets and integration costs of each division is detailed below and is described as 'Contribution' in the divisional analyses that follow.  

		Full year		Full year		First half
		2007		2006		2007
		£m		£m		£m
Global Markets
-	Global Banking & Markets	5,002		4,348		2,845
-	Global Transaction Services	1,649		1,616		789
Total Global Markets		6,651		5,964		3,634
Regional Markets
-	UK Retail & Commercial Banking	6,207		5,685		3,010
-	US Retail & Commercial Banking	1,476		1,739		788
-	Europe & Middle East Retail & Commercial Banking	798		698		380
-	Asia Retail & Commercial Banking	205		117		97
Total Regional Markets		8,686		8,239		4,275
RBS Insurance		905		967		363
Group Manufacturing		(4,287)		(4,192)		(2,108)
Central items		(1,641)		(1,656)		(842)
Underlying Group operating profit*		10,314		9,322		5,322

* Underlying Group operating profit 

Excludes

• RBS unusual items - credit market write-downs and goodwill payments, offset by the gains on sale of Southern Water and certain other assets

• ABN AMRO pre and post acquisition credit market write-downs and the impact of the LaSalle sale

• RBS share of ABN AMRO's shared assets

• amortisation of purchase accounting adjustments including purchased intangible assets and integration costs; and

Includes

• the cost of funding the ABN AMRO acquisition within Central Items. Whilst part of the acquisition consideration was funded by the issue of preference shares, these pro forma results assume that the cash element of the consideration was debt funded.

  Risk-weighted assets of each division were as follows:

		31 December		31 December		30 June
		2007		2006		2007
		£bn		£bn		£bn
Global Markets
-	Global Banking & Markets	191.4		176.6		187.7
-	Global Transaction Services	12.6		10.4		12.7
Total Global Markets		204.0		187.0		200.4
Regional Markets
-	UK Retail & Commercial Banking	179.0		165.0		170.1
-	US Retail & Commercial Banking	57.1		57.6		57.0
-	Europe & Middle East Retail & Commercial Banking	36.7		30.2		32.9
-	Asia Retail & Commercial Banking	3.3		2.8		2.9
Total Regional Markets		276.1		255.6		262.9
Other		9.9		5.3		9.9
		490.0		447.9		473.2

 GLOBAL MARKETS

GLOBAL BANKING & MARKETS

		Full year		Full year		First half
		2007		2006		2007
		£m		£m		£m
Net interest income from banking activities		2,453		2,060		1,170
Net fees and commissions receivable		2,221		2,043		1,124
Income from trading activities		4,334		3,671		2,726
Other operating income (net of related funding costs)		1,908		2,110		905
Non-interest income		8,463		7,824		4,755
Total income		10,916		9,884		5,925
Direct expenses
-	staff costs	4,194		3,539		2,261
-	other	1,230		1,541		618
-	operating lease depreciation	365		406		192
		5,789		5,486		3,071
Contribution before impairment losses		5,127		4,398		2,854
Impairment losses		125		50		9
Contribution		5,002		4,348		2,845
Income by product:
Rates, currencies and commodities		3,707		2,455		1,570
Equities		1,168		1,023		742
Credit markets		2,720		2,879		1,754
Asset and portfolio management		3,321		3,527		1,859
Total income		10,916		9,884		5,925
		£bn		£bn		£bn
Loans and advances to customers*
-	banking	201.1		147.6		156.2
-	trading	22.1		16.8		17.4
Rental assets		10.2		12.2		11.9
Customer deposits*		106.7		81.6		83.3
Risk-weighted assets		191.4		176.6		187.7

* excluding reverse repos and repos

  GLOBAL MARKETS

GLOBAL TRANSACTION SERVICES

		Full year		Full year		First half
		2007		2006		2007
		£m		£m		£m
Net interest income		842		756		393
Non-interest income		1,340		1,308		652
Total income		2,182		2,064		1,045
Direct expenses
-	staff costs	357		315		170
-	other	164		135		78
		521		450		248
Contribution before impairment losses		1,661		1,614		797
Impairment losses		12		(2)		8
Contribution		1,649		1,616		789
		£bn		£bn		£bn
Loans and advances to customers - gross		13.7		11.5		12.8
Customer deposits*		57.0		51.4		53.6
Risk-weighted assets		12.6		10.4		12.7

*excluding repos

  REGIONAL MARKETS 

UK RETAIL & COMMERCIAL BANKING

		Full year		Full year		First half
		2007		2006		2007
		£m		£m		£m
Net interest income		6,667		6,408		3,275
Non-interest income		4,435		4,167		2,189
Total income		11,102		10,575		5,464
Direct expenses
-	staff costs	1,928		1,817		937
-	other	1,081		1,088		526
		3,009		2,905		1,463
Insurance net claims		518		488		285
Contribution before impairment losses		7,575		7,182		3,716
Impairment losses		1,368		1,497		706
Contribution		6,207		5,685		3,010
Analysis of contribution by business unit:
Retail		3,844		3,594		1,838
Corporate		1,873		1,685		934
Wealth		490		406		238
		6,207		5,685		3,010
		£bn		£bn		£bn
Loans and advances to customers - gross
-	consumer (secured)	67.4		65.6		66.2
-	consumer (unsecured)	43.7		41.7		42.0
-	corporate	98.9		86.1		91.7
-	wealth	8.4		7.2		7.9
Customer deposits*		189.3		167.7		179.1
AUMs - excluding deposits		25.8		22.0		24.1
Risk-weighted assets		179.0		165.0		170.1

*customer deposits exclude Bancassurance

  REGIONAL MARKETS

US RETAIL & COMMERCIAL BANKING

		Full year		Full year		First half			Full year				Full year		First half
		2007		2006		2007			2007				2006		2007
		£m		£m		£m			$m				$m		$m
Net interest income		1,936		2,042		960			3,874				3,765		1,891
Non-interest income		850		951		401			1,700				1,753		790
Total income		2,786		2,993		1,361			5,574				5,518		2,681
Direct expenses
-	staff costs	601		666		309			1,203				1,228		609
-	other	368		407		181			736				750		357
		969		1,073		490			1,939				1,978		966
Contribution before
impairment losses		1,817		1,920		871			3,635				3,540		1,715
Impairment losses		341		181		83			682				333		163
Contribution		1,476		1,739		788			2,953				3,207		1,552
Average exchange rate - US$/£		2.001		1.844		1.970
									$bn				$bn		$bn
Loans and advances to customers – gross
-	mortgages								19.1				18.6		18.5
-	home equity								35.9				34.5		36.2
-	other consumer								21.7				23.2		22.7
-	corporate and commercial								37.6				32.7		34.6
Customer deposits								105.8				100.7			99.9
Risk-weighted assets								114.4				113.1			114.4
Spot exchange rate - US$/£								2.004				1.965			2.006

  REGIONAL MARKETS 

EUROPE & MIDDLE EAST RETAIL & COMMERCIAL BANKING 

		Full year		Full year		First half
		2007		2006		2007
		£m		£m		£m
Net interest income		1,066		936		506
Non-interest income		372		295		172
Total income		1,438		1,231		678
Direct expenses
-	staff costs	334		278		149
-	other	170		129		82
		504		407		231
Contribution before impairment losses		934		824		447
Impairment losses		136		126		67
Contribution		798		698		380
		£bn		£bn		£bn
Loans and advances to customers - gross
-	mortgages	18.3		15.0		16.2
-	corporate	25.3		19.6		21.7
-	other	4.2		4.2		3.9
Customer deposits		22.3		18.6		20.5
Risk-weighted assets		36.7		30.2		32.9

  REGIONAL MARKETS

ASIA RETAIL & COMMERCIAL BANKING 

		Full year		Full year		First half
		2007		2006		2007
		£m		£m		£m
Net interest income		285		224		124
Non-interest income		395		314		191
Total income		680		538		315
Direct expenses
-	staff costs	226		164		97
-	other	130		117		60
		356		281		157
Contribution before impairment losses		324		257		158
Impairment losses		119		140		61
Contribution		205		117		97
		£bn		£bn		£bn
Loans and advances to customers - gross		4.5		3.7		3.8
AUMs - excluding deposits		19.9		14.9		17.2
Customer deposits		10.8		8.6		9.5
Risk-weighted assets		3.3		2.8		2.9

  RBS INSURANCE

		Full year		Full year		First half
		2007		2006		2007
		£m		£m		£m
Earned premiums		5,607		5,713		2,815
Reinsurers' share		(220)		(212)		(110)
Insurance premium income		5,387		5,501		2,705
Net fees and commissions		(465)		(486)		(201)
Other income		734		664		339
Total income		5,656		5,679		2,843
Direct expenses
-	staff costs	297		319		147
-	other	444		423		203
		741		742		350
Gross claims		4,091		4,030		2,164
Reinsurers' share		(81)		(60)		(34)
Net claims		4,010		3,970		2,130
Contribution		905		967		363
In-force policies (000s)
-	Own-brand motor	6,713		6,790		6,829
-	Own-brand non-motor (home, rescue, pet, HR24)	3,752		3,759		3,757
-	Partnerships and broker (motor, home, rescue, SMEs, pet, HR24)	9,302		11,242		9,588
General insurance reserves - total (£m)		8,192		8,068		8,223

  GROUP MANUFACTURING

	Full year		Full year		First half
	2007		2006		2007
	£m		£m		£m
Staff costs	1,075		1,063		524
Other costs	3,212		3,129		1,584
Total manufacturing costs	4,287		4,192		2,108
Analysis of manufacturing costs
Group Technology	1,373		1,369		665
Group Property	1,519		1,439		740
Customer support and other operations	1,395		1,384		703
Total manufacturing costs	4,287		4,192		2,108

The expenditure incurred by Group Manufacturing relates to the Group's operations. These costs reflect activities that are shared between the various customer-facing divisions and consequently cannot be directly attributed to individual divisions. Instead, the Group monitors and controls each of its customer-facing divisions on revenue generation and direct costs whilst in Group Manufacturing such control is exercised through appropriate efficiency measures and targets. 

Whilst the Group does not allocate manufacturing costs to divisions for financial reporting purposes, the following table sets out the allocation of these costs to the divisions on a basis management considers to be reasonable:

	% of total manufacturing costs
Global Banking & Markets	10%
Global Transaction Services	10%
UK Retail & Commercial Banking	50%
US Retail & Commercial Banking	7.5%
Europe & Middle East Retail & Commercial Banking	7.5%
Asia Retail & Commercial Banking	5%
RBS Insurance	5%
Centre	5%

CENTRAL ITEMS 

Central Items comprises RBS group and corporate functions, the RBS share of ABN AMRO's head office costs and the pro forma funding costs associated with the ABN AMRO acquisition.

  RESTATEMENTS 

Divisional results for 2007 and 2006 as previously published have been restated to reflect transfers of operations and businesses between divisions following the implementation of the Group restructure. These changes do not affect the overall results of the Group.

	2007				2006
	Previously  reported	Transfers	Restated		Previously reported	Transfers	Restated
	£m	£m	£m		£m	£m	£m
Global Banking & Markets
Contribution	4,916	86	5,002		4,365	(17)	4,348
Global Transaction Services
Contribution	1,632	17	1,649		1,561	55	1,616
UK Retail & Commercial Banking
Contribution	6,250	(43)	6,207		5,722	(37)	5,685
US Retail & Commercial Banking
Contribution	1,557	(81)	1,476		1,821	(82)	1,739
Europe & Middle East Retail & Commercial Banking
Contribution	760	38	798		662	36	698
Asia Retail & Commercial Banking
Contribution	209	(4)	205		119	(2)	117
RBS Insurance
Contribution	902	3	905		964	3	967
Manufacturing
Contribution	(4,234)	(53)	(4,287)		(4,164)	(28)	(4,192)
Centre
Contribution	(1,678)	37	(1,641)		(1,728)	72	(1,656)

  IMPORTANT INFORMATION

The unaudited pro forma financial information has been prepared solely for illustrative purposes and is not necessarily indicative of the results that might have been achieved had the acquisition and transfers occurred on the dates indicated, nor is it necessarily indicative of the results of operations that may, or may be expected to be achieved in the future.

Statutory accounts

Financial information contained in this document does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 ('the Act'). The statutory accounts for the year ended 31 December 2007 will be filed with the Registrar of Companies and have been reported on by the auditors under section 235 of the Act. The report of the auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Act.

 

END

 

 

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